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Does Measurement Error Bias Fixed‐effects Estimates of the Union Wage Effect?
Author(s) -
Swaffield Joanna K.
Publication year - 2001
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/1468-0084.00228
Subject(s) - panel data , estimator , economics , fixed effects model , wage , econometrics , observational error , divergence (linguistics) , estimation , variable (mathematics) , standard error , panel survey , demographic economics , statistics , labour economics , mathematics , mathematical analysis , linguistics , philosophy , management
This paper compares estimates of the union wage effect using cross‐section and panel estimators for male manual full‐time and female employees using data from the British Household Panel Survey, 1991‐1997. A comparison of cross‐section and panel estimates suggests that unobserved heterogeneity biases cross‐section estimates upwards. However, it is also found that the divergence between estimates is overstated because measurement error biases the fixed‐effects estimates downward. Reducing measurement error in the union variable by taking averages and restricting changes in union status to occur only when a change in employer and/or job takes place increases fixed‐effects estimates of the union wage effect.