So we can state the problem as: Is a change in the tax rate followed by a change in hours worked, is there an observed correlation between these two events and can we rule out other Z-factors that can explain this observed correlation? In observational studies, variables that are thought to be causal (such as the net wage here() are referred to as independent variables. A variable that is thought to be an outcome (such as labor supply here) is referred to as the dependent variable.