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Semiparametric estimation of a sample selection model with a binary endogenous regressor: the effect of chronicity in labour supply

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  • Patricia Moreno-Mencía
  • David Cantarero-Prieto
  • Juan Rodriguez-Poo

Abstract

The aim of this paper is to investigate the effect of chronicity in labour supply and the participation equation in a flexible framework. We analyse a semiparametric model for data including problems of sample selection and endogeneity, because a regressor is correlated with the disturbance term. One approach is to specify a simultaneous equation model where a dummy endogenous variable accounting for chronicity is included in the structural and selection equation. We propose a consistent estimator of the structural parameters robust to misspecification. The endogeneity and the selection are assumed to be nonparametric and the conditional distribution of the errors is left unspecified. Using a control function approach, the resulting estimator is obtained through a new pairwise differencing transformation. In addition to its empirical performance, the asymptotic properties are established. Our empirical findings confirm the idea that having a chronic illness has a negative effect on income, accounting for an approximately $$32\% $$32% decrease in expected income, which is close to the finding of Currie and Madrian (1999).

Suggested Citation

  • Patricia Moreno-Mencía & David Cantarero-Prieto & Juan Rodriguez-Poo, 2023. "Semiparametric estimation of a sample selection model with a binary endogenous regressor: the effect of chronicity in labour supply," Applied Economics, Taylor & Francis Journals, vol. 55(15), pages 1682-1699, March.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:15:p:1682-1699
    DOI: 10.1080/00036846.2022.2099521
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