Self-Selection and Subjective-Well Being: Copula Models with an Application to Public and Private Sector Work

Abstract

We discuss a new approach to specifying and estimating ordered probit models with endogenous switching, or with binary endogenous regressor, based on copula functions. These models provide a framework of analysis for self-selection in economic well-being equations, where assigment of regressors may be choice based, resulting from well-being maximization, rather than random. In an application to public and private sector job satisfaction, and using data on male workers from the German Socio-Economic Panel, we find that a model based on Frank's copula is prefered over two alternative models with independence and normal copula, respectively. The results suggest that public sector workers are negatively selected.

Keywords: Ordered probit, switching regression, Frank copula, job satisfaction, German Socio-Economic Panel

JEL Classification: I31, C23