Sample Selection and Heckman's Method | Estimation Methods | Stata Tutorials Topic 46

Stata Tutorials Topic 46: Sample Selection and Heckman's Method | Regression Analysis and Estimation Methods Using Stata

Hi, I am Bob. We will explore sample selection today. We will learn how to follow Heckman's two-step procedure in Stata to alleviate the endogenous sample selection bias. Sample selection bias happens when the estimation sample cannot represent the entire population we are interested in. A classic example in econometrics textbooks is the women's wage equation.

Please download the dataset for this topic:
https://drive.google.com/file/d/1ZJDMq5mSGPbEm1hnbMpluCI5ub7Lk5iQ/view?usp=sharing

#SampleSelection #heckman #twostep #SampleSelectionBias #endogenous #exogenous #Stata #RegressionAnalysisandEstimationMethods #tutorial

The Stata commands in this video:
*Open dataset
use CPS91.dta, clear

describe

tabulate inlf

*OLS
regress lwage educ exper expersq black hispanic

estimates store OLS

*Heckman two-step procedure manually
*Step1: Linear predictions from selection regression
probit inlf educ exper expersq black hispanic nwifeinc kidlt6

predict inlfhat, xb

generate lambdahat=normalden(inlfhat)/normal(inlfhat)

*Step2: Include inverse Mills ratio in wage regression
regress lwage educ exper expersq black hispanic lambdahat

estimates store SSC1

esttab OLS SSC1, mtitles se star(* 0.1 ** 0.05 *** 0.01) b(%7.3f) compress

*The heckman command
heckman lwage educ exper expersq black hispanic, select(inlf=educ exper expersq black hispanic nwifeinc kidlt6) twostep mills(lambhat)

estimates store SSC2

esttab OLS SSC1 SSC2, mtitles se star(* 0.1 ** 0.05 *** 0.01) b(%7.3f) compress

summarize lambdahat lambhat

*An equivalent method
probit inlf educ exper expersq black hispanic nwifeinc kidlt6

predict inlfhat_pr, pr

regress lwage educ exper expersq black hispanic inlfhat_pr

estimates store SSC3

esttab OLS SSC1 SSC2 SSC3, mtitles se star(* 0.1 ** 0.05 *** 0.01) b(%7.3f) compress


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