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

22 Pages Posted: 1 Mar 2010

See all articles by Robert V. Breunig

Robert V. Breunig

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

Joseph Mercante

Australian Treasury

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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.

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. Economic Record, Vol. 86, Issue 272, pp. 49-70, March 2010, Available at SSRN: https://ssrn.com/abstract=1560151 or http://dx.doi.org/10.1111/j.1475-4932.2009.00619.x

Robert V. Breunig (Contact Author)

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

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Canberra, ACT 0200
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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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