endogeneity 2.ppt [호환 모드]

1

Natural Experimentsp

Natural Experiment NE required the control and treatment

t b t h d t l b groups to be matched not only by observed factors, but also unobserved factors.

Whether unobserved factors are “matched” is inferred from theory and other observed is inferred from theory and other observed information.

2

How much is the return to education?

Return to education What is the value of Schooling? Do people really learn useful things in

schools? Do people learn more in college than in high

school? Should government spend more money on

schools? What level of schools should get more funding?

How hard is it to measure the return to education?

A naïve regressionIncomei=α·Educationi+εi

Problems Measurement Errors (Income, Education)? Underspecification? Functional form misspecification? Functional form misspecification? Endogeneity?

3

Key Issue Endogeneity is the key issue Due to the correlation between education and

omitted variables that affect income (talents, family environment, …)

Due to measurement errors in education

The problem may not be solved by adding more control variables or using panel data.

Solution with Identical twins

Arguments for using twins data Id ti l t i h ld b ll t th h ld Identical twins should be equally smart; they should

look similar; and they should have the same family background. Therefore, if we could find twins with different

education, we can compare their income. The difference should reflect only the effect of education but not of omitted variables.

Strictly speaking we assume there is no unobserved Strictly speaking, we assume there is no unobserved inter-twin difference that is correlated with education.

Is this assumption valid?

4

Solution with identical twins

How about measurement error? A rule: If one has two independent measures of

a variable and both measures contain classical measurement errors, then she can use one measure as the instrumental variable of the other.

Hence, one possible way to address the potential measurement errors in schooling is to potential measurement errors in schooling is to ask the twins to report their co-twin’s education levels.

An Empirical Study(Bonjour et al., 2003) Data: 3,300 same-sex twins in 1999 in U.K. D t il d di l i f ti Detailed medical information Socioeconomic information

Methodln(wif)=βSif+aif+εif

ln(w1f)-ln(w2f)=βWTP(S1f-S2f)+(a1f -a2f)+(ε1f-ε2f) aif indicates ability net of family and genetic effects

Why identical twins may have different years of schooling?

5

6

Do Better Schools Increase Housing Prices? (Black, 1999)

Compare prices of houses on opposite sides of d di i b d iattendance district boundaries

Assumption: the houses share similar neighborhood characteristics

ln(price)=α+X’β+Z’δ+γtest+ε Problem: Not all relevant house or neighborhood

characteristics can be observed (e.g. public goods, i hb h d h t i ti )neighborhood characteristics)

Solution: Replace the district characteristics variable Z by a full set of boundary dummies indicating houses with common borders.

7

Data Housing prices

All h d l f 1993 th h 1995 f th All purchases and sales from 1993 through 1995 for three counties in suburbs of Boston, Massachusetts.

Massachusetts is chosen because of its small school districts, reducing heterogeneity of population within districts.

Focus on elementary schools because only this level allows for enough within-district variation.

N i hb h d h i i Neighborhood characteristics School district characteristics School Quality is measured by the fourth grade Educational

Assessment Program.

8

9

10

Sensitivity Tests Concern: Districts on opposite sides of the

boundaries are very differentboundaries are very different.

Exclude boundaries that were railroad tracks, highways, major streets.

Compare the effects of including more neighborhood controls on estimates.

Compare housing characteristics across borders. Compare housing characteristics across borders.

11

What is the Effect of Minimum Wage Law? (Card and Krueger, 1994)

How do employers in a low-wage labor market respond to an increase in the minimum wage?respond to an increase in the minimum wage?

Design Event: Minimum wage in New Jersey rose from $4.25

to $5.05/hour on April 1, 1992. Design 1: The treatment group includes stores in NJ

and the control group includes stores in PA, which was not (directly) affected by the wage rise.

Design 2: Treatment includes stores paying high wage and control group includes stores paying low wage prior to the wage rise, all in NJ.

12

Empirical Implementation Data: Survey (employment, wage, prices) of

410 (100%) f f d i NJ d 410 (100%) fast-food restaurants in NJ and eastern PA before and after the wage rise. Information on store closing also available.

ΔEi=a+bXi+cGAPi+εi ΔEi: Employment change at store i Xi: Characteristics of store i Xi: Characteristics of store i GAP: 0 for PA stores and high-wage NJ stores; (5.05-

W1i)/W1i for other NJ stores

Issues

Other things happening in NJ? Recession in NJ about the same time

Other things happen in PA? Are NJ and PA comparable? Seasonal patterns and market structure

similarsimilar Measurement Impact on store closing and opening.

13

14

15

Findings

No evidence that the rise in NJ’s minimum wage reduced employment In both design, increase in minimum wage

increase employment. Prices of fast-food meals increased in NJ

relative to PA. Within NJ, no evidence ,that prices increased more in stores most affected by the minimum-wage rise.

Re-evaluating the Evidence by Card and Krueger (Neumark and Wascher, 2005)

Data Actual payroll (work hours) from 230 Burger

King, KFC, Wendy’s, and Roy Rogers restaurants in NJ and PA.

Data sample matched to the same zipcodes and restaurant chains of CK’s study.

16

Findings Standard deviation of employment change in

CK’ d i h i l h NW CK’s data is three times as large as the NW data, suggesting potential quality problem of the CK data.

Estimates of the employment effect of the NJ wage rise lead to opposite conclusion from that of CK. Employment decrease in NJ after the of CK. Employment decrease in NJ after the wage rise.