New developments in econometric methods for labor market analysis

Econometric practice in labor economics has changed over the past 10 years as probit, logit, hazard methods, instrumental variables, and fixed effects models have grown in use and selection bias methods have declined in use. To a large degree these trends reflect an increasing preference for methods which are less restrictive, more robust, and freer in functional form than older methods, although not all trends are consistent with this view. The trends also reflect a tension between structural and reduced-form estimation that has not yet been resolved. A major point of the review is that this trend in labor economic practice has paralleled a trend in econometrics involving the use of flexible forms and semi-parametric and non-parametric methods but has not incorporated the lessons from that field.