Using the Helmert-transformation to reduce dimensionality in a mixed model: Application to a wage equation with worker and firm heterogeneity
AbstractA model for matched data with two types of unobserved heterogeneity is considered — one related to the observation unit, the other to units to which the observation units are matched. One or both of the unobserved components are assumed to be random. This mixed model allows identi…cation of the e¤ect of time-invariant variables on the observation units. Applying the Helmert transformation to reduce dimensionality simpli…es the computational problem substantially. The framework has many potential applications; we apply it to wage modeling. Using Norwegian manufacturing data shows that the assumption with respect to the two types of heterogeneity a¤ects the estimate of the return to education considerably.
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Bibliographic InfoPaper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 11/2011.
Length: 27 pages
Date of creation: 05 Jul 2011
Date of revision: 04 Oct 2011
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Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
Web page: http://www.nhh.no/sam/
More information through EDIRC
High-dimensional two-way unobserved components; Matched employer-employee data; ECM-algorithm.;
Other versions of this item:
- Nilsen, Øivind Anti & Raknerud, Arvid & Skjerpen, Terje, 2011. "Using the Helmert-Transformation to Reduce Dimensionality in a Mixed Model: Application to a Wage Equation with Worker and Firm Heterogeneity," IZA Discussion Papers 5847, Institute for the Study of Labor (IZA).
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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