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Practical fixed-effects estimation methods for the three-way error-components model

Author

Listed:
  • Martyn Andrews

    (School of Economic Studies, University of Manchester)

  • Thorsten Schank

    (Friedrich-Alexander-Universität Erlangen–Nürnberg)

  • Richard Upward

    (School of Economics, University of Nottingham)

Abstract

Methods for fixed-effects estimation of the three-way error-components model are not yet standard. Where possible, we make the fixed-effects methods originally developed by Abowd, Kramarz, and Margolis (Econometrica 67: 251-333) for linked worker-firm data more accessible. We also show how these methods can be implemented in Stata. There is a caveat, however. If the researcher wants to recover estimates of the error components themselves, and the number of units at the higher level of aggregation is large, memory or matrix constraints may make using Stata to estimate the components themselves infeasible. Copyright 2006 by StataCorp LP.

Suggested Citation

  • Martyn Andrews & Thorsten Schank & Richard Upward, 2006. "Practical fixed-effects estimation methods for the three-way error-components model," Stata Journal, StataCorp LP, vol. 6(4), pages 461-481, December.
  • Handle: RePEc:tsj:stataj:v:6:y:2006:i:4:p:461-481
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    References listed on IDEAS

    as
    1. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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