State dependence in work-related training participation among British employees: A comparison of different random effects probit estimators.

This paper compares three different estimation approaches for the random effects dynamic panel data model, under the probit assumption on the distribution of the errors. These three approaches are attributed to Heckman (1981), Wooldridge (2005) and Orme (2001). The results are then compared with those obtained from generalised method of moments (GMM) estimators of a dynamic linear probability model, namely the Arellano and Bond (1991) and Blundell and Bond (1998) estimators. A model of work-related training participation for British employees is estimated using individual level data covering the period 1991-1997 from the British Household Panel Survey. This evaluation adds to the existing body of empirical evidence on the performance of these estimators using real data, which supplements the conclusions from simulation studies. The results suggest that for the dynamic random effects probit model the performance of no one estimator is superior to the others. GMM estimation of a dynamic LPM of training participation suggests that the random effects estimators are not sensitive to the distributional assumptions of the unobserved effect.state dependence; training; dynamic panel data models

The Dynamics of Social Assistance Receipt: Measurement and Modelling Issues, with an Application to Britain

We model the dynamics of social assistance benefit receipt in Britain using data from the British Household Panel Survey, waves 1–15. First, we discuss definitions of social assistance benefit receipt, and present information about the trends between 1991 and 2005 in the receipt of social assistance benefits, and in annual rates of transition into and out of receipt. Second, we review potential multivariate modelling approaches especially the dynamic random effects probit models that are used in our empirical analysis and, third, discuss sample selection criteria and explanatory variables. Fourth, we present our regression estimation estimates and interpret them. The final section contains a summary of the substantive results, and highlights some lessons concerning application of the analysis for other countries and some methodological issues.social assistance, welfare benefits, dynamic random effects probit, income dynamics

Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators

This paper presents a convenient shortcut method for implementing the Heckman estimator of the dynamic random effects probit model and other dynamic nonlinear panel data models using standard software. It then compares the estimators proposed by Heckman, Orme and Wooldridge, based on three alternative approximations, first in an empirical model for the probability of unemployment and then in a set of simulation experiments. The results indicate that none of the three estimators dominates the other two in all cases. In most cases all three estimators display satisfactory performance, except when the number of time periods is very small.Dynamic discrete choice models ; initial conditions ; dynamic probit ; panel data ; dynamic nonlinear panel data models

The Dynamics of Social Assistance Benefit Receipt in Britain

We analyze the dynamics of social assistance benefit (SA) receipt among working-age adults in Britain between 1991 and 2005. The decline in the annual SA receipt rate was driven by a decline in the SA entry rate, rather than by the SA exit rate (which actually declined too). We examine the determinants of these trends using a multivariate dynamic random effects probit model of SA entry and exit probabilities applied to British Household Panel Survey data. The model estimates and accompanying counterfactual simulations highlight the importance of two factors – the decline in the unemployment rate over the period, and other changes in the socioeconomic environment including two reforms to the income maintenance system in the 1990s. The results also reveal a substantial heterogeneity in SA annual transition rates.benefits, income dynamics, social assistance, welfare, dynamic random effects probit

The Wooldridge Method for the Initial Values Problem Is Simple: What About Performance?

The Wooldridge method is based on a simple and novel strategy to deal with the initial values problem in the nonlinear dynamic random-effects panel data models. This characteristic of the method makes it very attractive in empirical applications. However, its finite sample performance is not known as of yet. In this paper we investigate the performance of this method in comparison with an ideal case in which the initial values are known constants, the worst scenario based on exogenous initial values assumption, and the Heckman's reduced-form approximation method which is widely used in the literature. The dynamic random-effects probit and tobit (type1) models are used as the working examples. Various designs of Monte Carlo Experiments with balanced and unbalanced panel data sets, and also two full length empirical applications are provided. The results suggest that the Wooldridge method works very well for the panels with moderately long durations (longer than 5-8 periods). In short panels Heckman's reduced-form approximation is suggested (shorter than 5 periods). It is also found that all methods perform equally well for panels of long durations (longer than 10-15 periods).initial values problem, dynamic probit and tobit models, Monte Carlo experiment, Heckman's reduced-form approximation, Wooldridge method

Relaxing the Strict Exogeneity Assumption in a Dynamic Random Probit Model

This paper is relaxing the strict exogeneity assumption in a dynamic random probit model to allow for the possibility of feedback effects. We take an MLE approach and specify a marginal distribution for the not strictly exogenous variable in question. Using a log-likelihood function similar to Wooldridge (2000) we propose two estimation strategies depending on what the object of interest is. We show that the parameters can be estimated using either quadrature or simulated maximum likelihood if all we are interested in is the parameters of the model. Subsequently average partial effects can be estimated. However, if we are more interested in knowing the average partial effects and less interested in the parameter estimates themselves, then it is useful to considering the problem as a method of moment problem rather than a MLE. This will allow an easy estimation of the average partial effect and in particular the variance of the APE such that statistical inference is possible. The insight is applied to a large Danish register data set on employment transitions to address the question of true state dependence in unemployment transitions. Moreover, we rise the important question, that a major part of the results in the state dependence literature could be invalid due to ignoring violations of the strict exogeneity assumption.unobserved heterogeneity, dynamic random probit, feedback effects, initial condition, state dependence

The dynamics of social assistance receipt: measurement and modelling issues, with an application to Britain

We model the dynamics of social assistance benefit receipt in Britain using data from the British Household Panel Survey, waves 1–15. First, we discuss definitions of social assistance benefit receipt, and present information about the trends between 1991 and 2005 in the receipt of social assistance benefits, and in annual rates of transition into and out of receipt. Second, we review potential multivariate modelling approaches especially the dynamic random effects probit models that are used in our empirical analysis and, third, discuss sample selection criteria and explanatory variables. Fourth, we present our regression estimation estimates and interpret them. The final section contains a summary of the substantive results, and highlights some lessons concerning application of the analysis for other countries and some methodological issues.social assistance, benefit dynamics, income dynamics, dynamic random effects probit, British Household Panel Survey

Low Pay Persistence in European Countries

Using panel data for twelve European countries over the period 1994-2001 we estimate the extent of state dependence in low pay. Controlling for observable and unobservable heterogeneity as well as the endogeneity of initial conditions we find positive, statistically significant state dependence in every single country. The magnitude of this effect varies by country, however this variation is not systematically related to labour market institutions.Low pay, low pay persistence, state dependence, initial conditions, dynamic random effects probit models

Low Pay Persistence in European Countries

Using panel data for twelve European countries over the period 1994-2001 we estimate the extent of state dependence in low pay. Controlling for observable and unobservable heterogeneity as well as the endogeneity of initial conditions we find positive, statistically significant state dependence in every single country. The magnitude of this effect varies by country, however this variation is not systematically related to labour market institutions.initial conditions, state dependence, low pay persistence, low pay, dynamic random effects probit models