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Low-pay transitions and attrition bias in Italy : An analysis using simulation based estimation

Author

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  • Lorenzo Cappellari

    (Department of Economics, University of Warwick)

Abstract

This paper analyses the extent to which existing econometric models of low-pay transition probabilities in Italy are biased by the presence of endogenous panel attrition. Non-random exits from the sample of wage earners may result from both demand and supply side factors and this could lead to under- or overestimation (respectively) of the extent of low-wage persistence. The analysis is carried out by extending the bivariate probit model used in Cappellari [1999] (where starting state and transition probabilities are jointly modeled thus tackling the endogeneity of the conditioning starting wage state) with a third equation which controls for the non-randomness of panel attrition. The resulting trivariate probit model with endogenous switching, whose evaluation is not feasible within the routines customarily available in microeconometric packages, is implemented by applying simulation estimation techniques. Results show the ignorability of attrition in SHIW data, thus pointing towards the robustness of the results previously obtained without controlling for attrition.

Suggested Citation

  • Lorenzo Cappellari, 1999. "Low-pay transitions and attrition bias in Italy : An analysis using simulation based estimation," The Warwick Economics Research Paper Series (TWERPS) 532, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:532
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp532.pdf
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    Cited by:

    1. David H. Clark & William Reed, 2005. "The Strategic Sources of Foreign Policy Substitution," American Journal of Political Science, John Wiley & Sons, vol. 49(3), pages 609-624, July.
    2. Carla Martinez Machain & Leo Rosenberg, 2018. "Domestic diversion and strategic behavior by minority groups," Conflict Management and Peace Science, Peace Science Society (International), vol. 35(5), pages 427-450, September.
    3. Lorenzo Cappellari, 2002. "Do the `working poor' stay poor? An analysis of low pay transitions in Italy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(2), pages 87-110, May.
    4. John Goddard & John O. S. Wilson, 2009. "Racial discrimination in English professional football: evidence from an empirical analysis of players' career progression," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(2), pages 295-316, March.
    5. Anna Giraldo & Enrico Rettore & Ugo Trivellato, 2002. "The persistence of poverty: true state dependence or unobserved heterogeneity? Some evidence from the Italian Survey on Household Income and Wealth," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B2-1, International Conferences on Panel Data.

    More about this item

    Keywords

    Low-pay transitions ; Attrition bias ; Simulation-based estimation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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