Does Measurement Error Bias Fixed-effects Estimates of the Union Wage Effect?

Author: Swaffield, Joanna K.

Source: Oxford Bulletin of Economics and Statistics, Volume 63, Number 4, September 2001 , pp. 437-457(21)

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Abstract:

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.

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1468-0084.00228

Affiliations: 1: Centre for Economic Performance, London School of Economics

Publication date: 2001-09-01