The Accuracy of Predicted Wages of the Non-Employed And Implications for Policy Simulations From Structural Labour Supply Models

40 Pages Posted: 5 Nov 2009

See all articles by Robert V. Breunig

Robert V. Breunig

Australian National University (ANU) - Crawford School of Public Policy

Joseph Mercante

Australian Treasury

Multiple version iconThere are 2 versions of this paper

Date Written: June 2009

Abstract

We examine the accuracy of predicted wages for the non-employed. We argue that unemployment, marginal attachment, and not in the labour force are three distinct states. Using panel data from Australia, we test the accuracy of predicted wages for these three groups of non-employed using sample selection models. Focusing on those individuals who subsequently enter employment, we find that predictions which incorporate the estimated sample selection correction perform poorly, particularly for the marginally attached and the not in the labour force. These results have important implications for policy simulations from structural labour supply models.

Keywords: labour supply, selection bias, wage predictions

JEL Classification: C52, J22, J3, J64

Suggested Citation

Breunig, Robert V. and Mercante, Joseph, The Accuracy of Predicted Wages of the Non-Employed And Implications for Policy Simulations From Structural Labour Supply Models (June 2009). Available at SSRN: https://ssrn.com/abstract=1500448 or http://dx.doi.org/10.2139/ssrn.1500448

Robert V. Breunig (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia
61261252148 (Phone)

HOME PAGE: http://https://crawford.anu.edu.au/crawford_people/content/staff/rbreunig.php

Joseph Mercante

Australian Treasury ( email )

Canberra, ACT 2600
Australia

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