Using the Helmert-transformation to reduce dimensionality in a mixed model: An application to a wage equation with worker and firm heterogeneity
A 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. Applying the Helmert transformation to reduce dimensionality simplifies the computational problem substantially. The framework has many potential applications; we apply it to wage modeling. Traditionally, unobserved individual and firm heterogeneity in wage equations have been represented by fixed effects. However, because of the presence of time-invariant covariates, we argue that specifications with random effects also deserve some attention. Our mixed model allows identification of the effects of time invariant variables on wages, such as for instance education. Using Norwegian manufacturing data it turns out that the assumption with respect to firm-specific unobserved heterogeneity affects the estimate of the return to education considerably.
|Date of creation:||Oct 2011|
|Date of revision:|
|Contact details of provider:|| Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway|
Phone: (+47) 21 09 00 00
Fax: (+47) 21 09 49 73
Web page: http://www.ssb.no/en/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jan Eeckhout & Philipp Kircher, 2011.
"Identifying sorting: in theory,"
LSE Research Online Documents on Economics
29708, London School of Economics and Political Science, LSE Library.
- Eeckhout, Jan & Kircher, Philipp, 2009. "Identifying Sorting: In Theory," IZA Discussion Papers 4004, Institute for the Study of Labor (IZA).
- Philipp Kircher & Jan Eeckhout, 2009. "Identifying Sorting, In Theory," 2009 Meeting Papers 581, Society for Economic Dynamics.
- Jan Eeckhout & Philipp Kircher, 2009. "Identifying Sorting - In Theory," PIER Working Paper Archive 09-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Fredrik Heyman, 2007. "Firm Size or Firm Age? The Effect on Wages Using Matched Employer-Employee Data," LABOUR, CEIS, vol. 21(2), pages 237-263, 06.
- Biorn, Erik & Godager, Geir, 2008.
"Does quality influence choice of general practitioner? An analysis of matched doctor-patient panel data,"
8793, University Library of Munich, Germany.
- Biørn, Erik & Godager, Geir, 2010. "Does quality influence choice of general practitioner? An analysis of matched doctor-patient panel data," Economic Modelling, Elsevier, vol. 27(4), pages 842-853, July.
- Biørn, Erik & Godager, Geir, 2009. "Does quality influence choice of general practitioner? An analysis of matched doctor-patient panel data," HERO On line Working Paper Series 2008:3, Oslo University, Health Economics Research Programme.
- Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
- Robert Plasman & François Rycx & Ilan Tojerow, 2007.
"Wage differentials in Belgium: the role of worker and employer characteristics,"
Brussels Economic Review,
ULB -- Universite Libre de Bruxelles, vol. 50(1), pages 11-40.
- Robert Plasman & François Rycx & Ilan Tojerow, 2007. "Wage differentials in Belgium: the role of worker and employer characteristics," DULBEA Working Papers 07-12.RS, ULB -- Universite Libre de Bruxelles.
- Thierry Lallemand & Robert Plasman & François Rycx, 2005. "Why do large firms pay higher wages? evidence from matched worker-firm data," ULB Institutional Repository 2013/8743, ULB -- Universite Libre de Bruxelles.
- Vasso Ioannidou & Steven Ongena, 2010. ""Time for a Change": Loan Conditions and Bank Behavior when Firms Switch Banks," Journal of Finance, American Finance Association, vol. 65(5), pages 1847-1877, October.
- Sónia Torres & Pedro Portugal & John T. Addison & Paulo Guimarães, 2010. "The Sources of Wage Variation: An Analysis Using Matched Employer-Employee Data," Working Papers w201025, Banco de Portugal, Economics and Research Department.
- John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:667. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard)
If references are entirely missing, you can add them using this form.