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st: Random effects and pooled models

From   "Elena Giarda" <>
To   <>
Subject   st: Random effects and pooled models
Date   Thu, 27 Jul 2006 17:46:52 +0200


I have panel data on individual wages and I'm trying to estimate age profiles taking into account birth cohorts (9 of them).

I ran the following regression and obtained significant coefficients on all variables:

reg ln_wage age age_squared control_variables cohort_dummies, robust

Then I wanted to check whether a random effects model was appropriate and therefore run:

iis cohort
xtreg ln_wage age age_squared control_variables, re

but in the output I obtained:

Random-effects GLS regression Number of obs = 411913
Group variable (i): cohort Number of groups = 9

R-sq: within = 0.4447 Obs per group: min = 17118
between = 0.9953 avg = 45768.1
overall = 0.5088 max = 66702

Random effects u_i ~ Gaussian Wald chi2(14) = 426627.54
corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

sigma_u = 0
sigma_e = 0.30766012
rho = 0 (fraction of variance due to u_i)

What does rho=0 mean exactly? That there are no cohort effects? I made a check and found out that I got the same results of running a pooled regression:
reg ln_wage age age_squared control_variables, robust

Can anybody give me hand?

Thanks a lot!

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