Sample selection bias and the South African wage function

Stellenbosch Working Paper Series No. WP18/2008
 
Publication date: 2008
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

Conventional wage analyses suffers from a debilitating ailment: since there are no observable market wages for individuals who do not work, findings are limited to the sample of the population that are employed. Due to the problem of sample selection bias, using this subsample of working individuals to draw conclusions for the entire population will lead to inconsistent estimates. Remedial procedures have been developed to address this issue. Unfortunately, these models strongly rely on the assumed parametric distribution of the unobservable residuals as well as the existence of an exclusion restriction, delivering biased estimates if either of these assumptions is violated. This has given rise to a recent interest in semi-parametric estimation methods that do not make any distributional assumptions and are thus less sensitive to deviations from normality. This paper will investigate a few proposed solutions to the sample selection problem in an attempt to identify the best model of earnings for South African data.

 
JEL Classification:

C14, C15, C34, J21

Keywords:

Semiparametric and nonparametric methods; Simulation methods; Truncated and censored models; Labour force and employment, Size, and structure

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1 March 2021
Even with the release of data showing a record high unemployment rate in 2020Q4, it turned out to be a fairly good week for the SA economy. Daily new COVID-19 infections remained well contained, while the second batch of 80 000 J&J vaccines arrived (albeit controversially with the grounded SAA being the carrier). In addition, relative to the October...

Read the full issue