# st: Re: Heckman Method

 From Trevor Dave To statalist@hsphsun2.harvard.edu Subject st: Re: Heckman Method Date Fri, 11 Nov 2005 13:18:36 -0500 (EST)

I agree with Robert's points. The dummy ' Urban/rural'
area may act as exclusion restriction if we think that
in urban area prospects for jobs is better and
consequently labor fore participation is higher.
However, again the problem is that if 'urban/rural'
influences wage rate then ultimately there will be
impact on work hours.

Trevor

Following up on the points rightly mentioned by
Rafa,

The traditional exclusion restrictions in the
literature  (the number
of children in the household, the presence of an
household and the expected variance of household
income) are
unconvincing if you consider for instance that all
these factors
impact the hours decision specially for women, and
if you beleive in
the possiblity of division of labor in the household
between husbands
and wifes.

Unfortunately, other selectivity correction methods
won't get you out
of this dilemma... actually as far as I remember the
Heckman method is
the only one that allows you to have the same
variables in both
equations, precisely because of the nonlinearities
implied by the
Normality assumption. Any semiparametric correction
method will
require exclusion restrictions. Finally, the
identification based on
the nonlinearity of the IMR is very weak, as it has
been shown that
for a good range of values of the XB index the IMR
is virtually
linear, so if you don't have a good spread of values
in the index,

Robert

On 11/10/05, R.E. De Hoyos <redeho@hotmail.com>
wrote:
> Wasim/John,

> Two points here. (1) You have to think if observed
hours of work are really
> the outcome of a utility maximizing process or if
they are primarily driven
> by institutional rigidity. If institutional
rigidities matter then almost
> all instruments will capture the effect upon
participation (a
> utility-maximizing decision) without affecting
hours of work (see Heckman
> 1990, AER). In many cases the density of hours
worked is concentrated around
> two points, i.e. full time (40 hrs per week) and
part time (20 hrs per
> week). The relative importance of the
self-employed (and/or informal sectors
> in less developed countries) will make this
distribution less concentrated
> around these two points. So you really need to
> process behind the data. Depending on your data,
> it could be preferable to
> estimate a discrete choice model (multinomial
logit or probit) to
> approximate participation and---indirectly---hours
worked. (2) Some of the
> most common instruments in the literature of
female labour participation
> are: the number of children in the household, the
> of the household (typically the husband or father)
> and the expected variance
> of household income (specially under borrowing
constraints).
>
> I hope this helps,
>
> Rafa
> ________________________
> R.E. De Hoyos
> Faculty of Economics
> University of Cambridge
> CB3 9DE, UK
> www.econ.cam.ac.uk/phd/red29/
>
> ----- Original Message -----
> > From: "Wasim Akram" <wasim704@yahoo.ca>
> > To: <statalist@hsphsun2.harvard.edu>
> > Sent: Thursday, November 10, 2005 5:18 AM
> > Subject: st: Heckman Method
> >
> >
> > > Dear Statalist Members,
> > > I am trying to estimate labor force
> participation and
> > > work hour model using heckman's two step
> estimator. I
> > > do not have wage data and consequently I am
> relying on
> > > reduced from approach.
> > > So far I have not used any exclusion restriction
> in
> > > the first stage probit probit model and
> consequently
> > > the entire identification strategy is based on
> the
> > > normality assumption of the error terms. Many
> > > economists argue to avoid such situation.
> > > So I need a variable that effect labor force
> > > participation but not work hours. I find it
> difficult
> > > to identify such variable given the fact that
> labor
> > > force participation and work hours are derived
> from
> > > the same utility maximizing model.
> > > Can any one suggest me of any such variable? Or
> should
> > > I drop Heckman method and look for other method
> for
> > > correcting selection bias? Which method?
> > >
> > > Thanks,
> > >
> > > Wasim
> > >
> > >
> > >
> > >
> > >
> > >
> > >
>

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