selection bias.

While fishing around for articles on wage estimation on a Saturday morning, as you do, I found a good, simple explanation of how Heckman deals with sample selection bias:

The problem of selection bias may be illustrated by the following figure, where w denotes an individual’s wage and x is a factor that affects this wage, such as the individual’s level of education. Each point in the figure represents individuals with the same education and wage levels in a large and representative sample of the population. The solid line shows the statistical (and true) relationship that we would estimate if we could indeed observe wages and education for all these individuals. Now assume – in accordance with economic theory – that only those individuals whose market wages exceed some threshold value (the reservation wage) choose to work. If this is the case, individuals with relatively high wages and relatively long education will be overrepresented in the sample we actually observe: the dark points in the figure. This selective sample creates a problem of selection bias in the sense that we will estimate the relation between wage and education given by the dashed line in the figure. We thus find a relationship weaker than the true one, thereby underestimating the effect of education on wages.


Leave a comment

Filed under pol econ

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s