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Why Do Fixed-Effects Models Perform So Poorly? The Case of Academic Salaries

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  • Daniel S. Hamermesh

Abstract

A large and growing line of research has used longitudinal data to eliminate unobservable individual effects that may bias cross-section parameter estimates. The resulting estimates, though unbiased, are generally quite imprecise. This study shows that the imprecision can arise from the measurement error that commonly exists in the data used to represent the dependent variable in these studies. The example of economists' salaries, which are administrative data free of measurement error, demonstrates that estimates based on changes in longitudinal data can be precise. The results indicate the importance of improving the measurement of the variables to which the increasingly high-powered techniques designed to analyze panel data are applied. The estimates also indicate that the payoff to citations to scholarly work is not an artifact of unmeasured individual effects that could be biasing previous estimates of the determinants of academic salaries.

Suggested Citation

  • Daniel S. Hamermesh, 1987. "Why Do Fixed-Effects Models Perform So Poorly? The Case of Academic Salaries," NBER Working Papers 2135, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2135
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    References listed on IDEAS

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    Cited by:

    1. Brown, Byron W. & Woodbury, Stephen A., 1998. "Seniority, external labor markets, and faculty pay," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 771-798.
    2. Ehrenberg, R.G.Ronald G., 2004. "Econometric studies of higher education," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 19-37.

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