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Comparing Estimation Strategies for Income Equations in the Presence of Panel Attrition: Empirical Results Based on the ECHP

  • Behr Andreas

    ()

    (Institute for Econometrics, University of Muenster, Am Stadtgraben 9, D-48143 Muenster, Germany)

Registered author(s):

    Since attrition in the European Community Household Panel (ECHP) has cumulated to a considerable extent, there is concern that attrition biases empirical analysis. In this paper we compare the performance of four different strategies for estimating an earnings equation in the presence of panel attrition. By splitting the completely observed sample in one wave according to the response behavior of the following wave, we assess empirically the bias of an un-weighted, an inverse probability weighted, a Heckman and a matching estimator through bootstrap methods. Our findings lead us to several conclusions. First, for the example of Mincerian earnings equations, attrition is no matter of great concern when using the ECHP data. Second, the three estimation strategies, which correct for attrition based on estimated response probabilities, reduce the number of significantly biased parameters. Third, the correction strategies strongly increase the variance of the estimates through relying on estimated response probabilities and increase the relative bias. Hence, the reduction of significant biases is rather due to increased variance than due to lower biases. This result is confirmed when comparing the mean square error of the different estimation techniques. Therefore, for the estimation of income equations the uncorrected estimation based on respondents is suggested as the superior estimation strategy.

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    File URL: http://www.degruyter.com/view/j/jbnst.2006.226.issue-4/jbnst-2006-0403/jbnst-2006-0403.xml?format=INT
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    Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

    Volume (Year): 226 (2006)
    Issue (Month): 4 (August)
    Pages: 361-384

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    Handle: RePEc:jns:jbstat:v:226:y:2006:i:4:p:361-384
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    1. Jacob Mincer, 1994. "The Production of Human Capital and the Lifecycle of Earnings: Variations on a Theme," NBER Working Papers 4838, National Bureau of Economic Research, Inc.
    2. J. Fitzgerald & P. Gottschalk & R. Moffitt, . "An Analysis of Sample Attrition in Panel Data: The Michigan Panel Study of Income Dynamics," Institute for Research on Poverty Discussion Papers 1156-98, University of Wisconsin Institute for Research on Poverty.
    3. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
    4. Lee A. Lillard & Constantijn W. A. Panis, 1998. "Panel Attrition from the Panel Study of Income Dynamics: Household Income, Marital Status, and Mortality," Journal of Human Resources, University of Wisconsin Press, vol. 33(2), pages 437-457.
    5. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
    6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    7. Nicoletti, Cheti & Peracchi, Franco, 2002. "A cross-country comparison of survey nonparticipation in the ECHP -ISER working paper-," ISER Working Paper Series 2002-32, Institute for Social and Economic Research.
    8. Garen, John, 1984. "The Returns to Schooling: A Selectivity Bias Approach with a Continuous Choice Variable," Econometrica, Econometric Society, vol. 52(5), pages 1199-1218, September.
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