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Quantile Selection Models With an Application to Understanding Changes in Wage Inequality

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  • Manuel Arellano
  • Stéphane Bonhomme

Abstract

We propose a method to correct for sample selection in quantile regression models. Selection is modeled via the cumulative distribution function, or copula, of the percentile error in the outcome equation and the error in the participation decision. Copula parameters are estimated by minimizing a method‐of‐moments criterion. Given these parameter estimates, the percentile levels of the outcome are readjusted to correct for selection, and quantile parameters are estimated by minimizing a rotated “check” function. We apply the method to correct wage percentiles for selection into employment, using data for the UK for the period 1978–2000. We also extend the method to account for the presence of equilibrium effects when performing counterfactual exercises.

Suggested Citation

  • Manuel Arellano & Stéphane Bonhomme, 2017. "Quantile Selection Models With an Application to Understanding Changes in Wage Inequality," Econometrica, Econometric Society, vol. 85, pages 1-28, January.
    • Handle: RePEc:wly:emetrp:v:85:y:2017:i::p:1-28
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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