about me
art
biz
Chess
corrections
economics
EconoSchool
Finance
friends
fun
game theory
games
geo
mathstat
misc
NatScience
... more
Profil
Logout
Subscribe Weblog

 
Fresh from the Fridge: Imagine you have collected data on quit rates experienced by a set of firms during a given year and data on the firms' avarage wage rates (sample size = 100). The data are presented grafically in the figure below:
wagequit01Each dot in this figure represents a quit-rate/hourly-wage combination for one of the hundred firms. From a visual inspection of all data points, it appears from this figure that firms paying higher wages in our (hypothetical) example do indeed have lower quit rates. But would it make sense to explain the quit rates solely with the wage rates? Definitely not. Economic theory suggests there are many factors besides wages that systematically influence quit rates. These include characteristics both of firms (e.g. employee benefits offered, working conditions, and firm size) and of their workers (e.g. age and level of training).

If any of these other variables that we have omitted from our analysis tend to vary across firms systematically with the wage rates that the firms offer, the resulting estimated relationship between wage rates and quit rates will be incorrect. In such a cases, we must take these other variables into account by using a model with more than one independent variable.

The data in the plot given above were generated under the assumption that the only variable affecting a firm's quit rate besides its wage rate is the average age of its workforce. Older workers are, ceteris paribus, less likely to quit their jobs for a number of reasons (as workers grow older, ties to friends, neighbors, and co-workers become stronger, and the psychological costs involved in changing jobs--which often require a geographic move--grow larger). To cut a long story short: Half of the firms of our sample employed mainly young workers and paid an average wage of 8 Euro, the other half employed mainly old workers and therefore paid an average wage of 10 Euro. In both cases the standard deviation of the wage rate was two Euro. Furthermore, at any level of wages a firm's quit rate was 10 percentage points lower if it employed mainly old workers.
wagequit02The red line is what we get when we do not control for age and run a regression over the whole sample. The blue regression lines emerge when we run separate regressions for firms with an old workforce and firms with a young workforce*. It can easily be seen that the first model exaggerates (=omitted variable bias) the effect of a wage increase (slope of -3.5 instead of -2.5 (= true slope)). In words: A wage increase of one Euro decreases the quit rate by 2.5 % and not by 3.5 %.

Example taken from "Modern Labor Economics - Theory and Public Policy" (Ehrenberg & Smith).

*Actually, one should run a single regression that includes a dummy variable for age.
Paul N (guest) meinte am 15. Sep, 09:53:
Regressions
If you want to know the true relationship between wage and quit rate, don't you also have to compare the effects of not just age, but also race, sex, religion, how much water you drink, etc?

The thing I don't get about regression analysis is, in order for it to work, you have to control for every variable that can affect what you're measuring, but how can you possibly know what every such variable is? It's hard enough in the hard sciences - I imagine it to be even harder in social sciences that are ~psychology. 
Mahalanobis antwortete am 15. Sep, 13:26:
Re:
...don't you also have to compare the effects of...
Economic theory suggests there are many factors besides wages... RTFP ;-D
The thing I don't get about regression analysis is, in order for it to work, you have to control for every variable that can affect what you're measuring, but how can you possibly know what every such variable is?
1. You do not have to control for every variable that can affect what you're measuring. The error term picks up all omitted variabls and measurement errors. From a theoretical point of view, errors are often assumed to be normally distrbuted since they represent the combined effect of a myriad of omitted variables with good manners (see Lindeberg-Levy or Lindeberg-Feller Central Limit Theorem). You only run into trouble if those omitted variables are not orthogonal to the regressors. In this case the estimates are biased. But keep in mind that if you include unnecessary regressors, your estimates become inefficient.

2. Runnig a regression is just one stage of a long process. Econometricians do such things as Model Selection, Diagnostic Checking, Specification Testing, Sensitivity Analysis... Sure, omitted variables are a nasty problem because residuals ("estimated errors") are always orthogonal to the regressors (that's what OLS does...). But even here the situation is not entirely hopeless.

3. What you are actually saying is that one cannot make any statements about economic reationships at all because there are too many effects which would have to be taken into account. The Austrian School would probably say that it is logical that wage-increases reduce quit rates. Sure, but by 0.1%, 10%, or 100%? That's what non-ivory-tower people care about. 
Paul N (guest) antwortete am 17. Sep, 00:19:
Well I like the example a lot, but I think it just illustrates this problem. Before you take other variables into account, you have a correlation. After you think about all the variables you can possibly imagine and control for them, then you still have a correlation.

I don't know much about econometrics but it's almost daily that you see correlational health studies reported (my favorite example is "women who do more housework found to have lower endometrial cancer rate"), with the clear implication that the result is somehow causative. In almost every case, you can think of at least 5, typically 10 variables that could play a role in the observed effect (e.g. age, race, income, job type, family status, other exercise, smoking, drinking, history, culture, etc.). Sometimes some of these variables are accounted for, but I suspect there's a strong bias to include only the most obvious ones, or ones that don't weaken the correlation; in any case, rarely, even for JAMA or NEJM articles like this, do you get the sense that other variables really aren't a problem.

So I guess I'm just taking out my frustration, because it infuriates me almost every time I see a correlational study reported - I feel like these data are typically latched onto because it gives people an excuse to believe what they want to be true. 
kimcil (guest) antwortete am 7. Apr, 12:28:
I am preparing a research paper and collecting information on this topic. Your post is one of the better that I have read. Thank you for putting this information into one post.
alfamart official partner merchandise fifa piala dunia brazil 2014
Unit Link Terbaik di Indonesia Commonwealth Life Investra Link 
begedir antwortete am 4. May, 19:33:
I am preparing a research paper and collecting information on this topic. Your post is one of the better that I have read. Thank you for putting this information into one post. cara belajar bahasa inggris dengan cepat , pengen cepat hamil , kata kata minta maaf 
johncloe8885 antwortete am 22. Sep, 14:19:
Approach There are many
Approach
There are many that provide instant financing best payday loans
online retailers could do everyone's needs. visit the website and fill 12 month Direct lenders
out the form, the name permanent address a few more will., bank fast loans
account information, business information and other conditions that no credit check payday loans
need to be filled in to avail the loan, you are within a few hours, and quick loans
loan amounts will be transferred to your bank account. therefore, his log book loans
standby loan amounts in order to retrieve documents and they finally verified article, 
johncloe8885 antwortete am 22. Sep, 14:22:
you do not
you do not need to fax approved. credit check loan is a viable option for instant payday loans
theGet your instant cash loan, the money you do not need to visit an Office, to be sent directly to your bank account.
12 month loans no fees

You have done a lot of research is providing a loan of money, instant loans
depending on your needs before choosing a loan just like the payday loan no credit check
hundreds of other Americans, and almost immediately, you will not be short term loans online
able to receive faxes no financing. the short-term financial crisis will v5 loans
be a boon for those who are stuck in. 
johncloe8885 antwortete am 26. Sep, 12:10:
Ficou office agree that we know what is possible, or credit card, property development finance and then Anticipated application forex robot
by e-mail all the documents within the online hours yapılmadığının complete.Financial credit is best forex trading platform
this: This is mainly Rejected.You, you need to send an electronic document information, banking asset finance
information, there Photo ID.
Introduction date of the loans for people on benefits
loan funds.Research on long-term credit available 8-25.Must pay interest on the amount instant payday loans
.It is necessary to reduce the amount you want to pay, and allows you to repay the loan Another destination lender subsidies on certain Watt And. 
maskodok antwortete am 23. Nov, 13:14:
I am preparing a research paper and collecting information on this topic. Your post is one of the better that I have read. Thank you for putting this information into one post.
Pokerstar88.com agen texas poker dan domino online indonesia terpercaya, Agen Bola, Taruhan Bola, Agen Bola Terpercaya, Olb365.com Agen Judi Bola Online, Agen Judi Casino Online Indonesia Terpercaya 
dzeko antwortete am 9. Apr, 03:16:
It’s very straightforward to find out any matter on web as compared to textbooks, as I found this post at this site.

Maybe the excite news rental mobil di yogyakarta, & don't forget check useful info Martabak Paling Enak di Jakarta & cool info rental mobil surabaya & info Cipto Junaedy & cool post Minuman Berenergi & useful post Buku Anak Muslim & cool info Cipto Junaedy. Good read it !
sewa alphard surabaya
sewa innova surabaya
sewa alphard jogja
sewa innova jogja
sewa fortuner jogja
sewa hiace commuter jogja
kerajinan tembaga
kerajinan tembaga
kerajinan tembaga
kerajinan tembaga
and sewa mobil di Jakarta
 
maskodok antwortete am 10. Apr, 06:46:
I needed to much obliged in your time for this sublime read!! I decidedly getting a charge out of every tad bit of it and I have you bookmarked to look at new stuff you weblog post. Cipto Junaedy | Cipto Junaedy | Cipto Junaedy | Jadwal MotoGP 2015| Cara Upload Video ke Youtube | Download BBM Untuk Android Versi Terbaru | Cara Membuat Email | Cara Instal Windows 8 So fortunes to run over your incredible online journal. Your online journal presents to me a lot of fun.. Good fortunes with the site. Jinpoker.com Agen Judi Poker Online dan Domino Online Indonesia Terpercaya | Cahayapoker.com Agen Judi Poker Dan Domino Uang Asli Online Terpercaya Indonesia | ituDewa.net Agen Judi Poker Domino QQ Ceme Online Indonesia | Nusantarapoker.com Agen Texas Poker Dan Domino Online Tanpa Robot Terpercaya 
Kevin (guest) meinte am 19. Sep, 20:34:
2.5% or 3.5%? When does it really matter?
It's clear that there are some policy applications for which 2.5% is very far from 3.5%, but others for which these numbers are very close.

For the (wonderfully clear) particular example you specified, it's hard to tell whether or not the omitted variable actually is a problem or just an annoyance. 
dsds (guest) meinte am 5. Jul, 06:57:
Many players in the purchase of laptop cooling pads is going to be seen ergonomic design, this term has always existed among industry, a good action can use computers to help players develop a good habit, but also laid the foundation for the physical and mental health. For the players, the front office a long time in a notebook or a game, arms, shoulders, wrists will appear uncomfortable feeling, however regular cooling pad can solve this problem, the use of ergonomic design, but also can adjust different perspective, the general radiator has two angles are adjusted to facilitate the players to use. 
jacksmith (guest) meinte am 9. Jan, 11:04:
Thanks
It's a neat argument. examcollection 156-215.75 In hunter gatherer days, there was only group selection because the group shared everything and thus all individuals within 156-215.75 vce questions the tribe had the same success with offspring. Intelligence or productivity was selected for by the relatively weak force of tribal fights. vce 156-215.75 
feels (guest) meinte am 15. Jul, 19:07:
feel
i can feel your problem, pretty difficult

comment by apkstrong and apksphere 
ttlwu meinte am 20. Aug, 12:46:
Thanks for sharing nice information with us. i like your post and all you share with us is uptodate and quite informative, i would like to bookmark the page so i can come here again to read you, as you have done a wonderful job.
funny videos online free download 
ttlwu meinte am 20. Aug, 12:53:
I admit, I have not been on this web page in a long time... however it was another joy to see It is such an important topic and ignored by so many, even professionals. professionals. I thank you to help making people more aware of possible issues.
make your own funny videos online for free 
kurasakisan meinte am 23. Sep, 17:13:
Thanks for writing amazing article, I really love it and appreciate that

Shadow Fight 2 Apk 
ttlwu meinte am 10. Nov, 11:21:
Great post, and great website. Thanks for the information!
bearpaw emma short 
ttlwu meinte am 10. Nov, 11:35:
Wonderful illustrated information. I thank you about that. No doubt it will be very useful for my future projects. Would like to see some other posts on the same subject!
bearpaw emma tall 
ttlwu meinte am 23. Dec, 08:57:
Great Article it its really informative and innovative keep us posted with new updates. its was really valuable. thanks a lot.
funny pictures with quotes for instagram 
ttlwu meinte am 23. Dec, 09:09:
This is my first time i visit here and I found so many interesting stuff in your blog especially it's discussion, thank you.
facebook funny pictures download 
AsharSeo meinte am 22. Mar, 07:24:
Auf über 300 m2 Fläche nden wir für Ihre Kunstwerke, Bilder und Fotos den passenden Rahmen, mit oder ohne Passepartout. Unsere top ausgestatte Rahmenwerkstatt ermöglicht uns schnell und in höchster Qualität auf jeden Kundenwunsch zu reagieren. Unsere über 20 Jahre Erfahrung sind ein großer Pluspunkt für unsere Kunden.Bilderschienen 
mena99260mena99260 meinte am 5. Apr, 09:53:
Davidjohn
I definitely enjoying every little bit of it. It is a great website and nice share. I want to thank you. Good job! You guys do a great blog, and have some great contents. Keep up the good work. goji pro 
mena99260mena99260 meinte am 8. Apr, 10:07:
Davidjohn
Great Article it its really informative and innovative keep us posted with new updates. its was really valuable. thanks a lot.the venus factor free download 
mena99260mena99260 meinte am 9. Apr, 13:03:
Davidjohn
Ixperia IT Schulung und Beratung An 18 Standorten in Deutschland bieten wir anspruchsvollen Führungskräften und Mitarbeitern erfolgreich Seminare zu den Themen IT Service Management, ITIL, Projektmanagement und Prince2 in exzellenter Atmosphäre. Sowohl fachlich als auch für die Durchführung erhalten wir von unseren Teilnehmern dafür die besten Beurteilungen mit 100% Erfolgsgarantie. ITIL Expert 
AsharSeo meinte am 22. Apr, 10:11:
I always, ALWAYS read and hear it as Fart Head, not Fathead, probably because the dude who does the voice overs voice sounds like farts.reishi 
mena99260mena99260 meinte am 25. Apr, 14:03:
Davidjohn
I like the helpful information you provide in your articles. I will bookmark your weblog and check again here regularly. florence personal injury lawyer 
mena99260mena99260 meinte am 25. Apr, 14:04:
Davidjohn
I like the helpful information you provide in your articles. I will bookmark your weblog and check again here regularly. things to do in idaho falls 
AsharSeo meinte am 30. Apr, 12:01:
I definitely enjoying every little bit of it. It is a great website and nice share. I want to thank you. Good job! You guys do a great blog, and have some great contents. Keep up the good work..phones android 
AsharSeo meinte am 2. May, 12:14:
Please take a look around and we are sure you’ll find something that’s just right for you. Thanks so much for visiting us here at Craigs Appliances!Somanabolic Muscle Maximizer 
AsharSeo meinte am 4. May, 11:47:
I am looking for and I love to post a comment that "The content of your post is awesome" Great work!https://www.rebelmouse.com/oldschoolnewbodypdfreview/