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March 09, 2007

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William Henderson

John,

You raise a good question. In fact, there is not a very strong correlation between compensation and interesting work or quality work. Multicollinearity is not typically a problem unless the correlations are > .7.

I also check the variance inflation factor (VIF) diagnostics. The usual rule of thumb is that VIF > 5 are problematic and may require re-specification of the model. The VIF were all lower than that.

John Coates

Interesting, and within some range, plausible. But I don't think your regression gets me there: what's the correlation between compensation and interestingness/quality of work? If it's high, as I expect, then multicollinearity makes inference about both difficult. As a thought experiment: suppose a firm scoring high on interestingness/quality of work cut salaries by 50% for incoming associates. Do we really think the associates would be as good, or that, conditional on taking the job in the first place, stick around as long?

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