Re: st: interpreting output from -xtivreg2-

[Austin Nichols <austinnichols@gmail.com>]

Paul  Sicilian <siciliap@gvsu.edu> :
Simply "passing" an overidentification test need not lead you to
conclude that an instrument is valid. The overidentification test may
not have enough power to reject the null that the exclusion
restriction is valid--but that should not stop you from rejecting it,
if you believe that #children, spouse's education, and duration of
marriage are all endogenous (in addition to years worked during the
current marriage).  Sometimes a "sniff" test is more valuable than an
overid test (to paraphrase Dan Hamermesh).  There are a bunch of other
sample selection problems (e.g. selection on the dependent variable,
missing wages for nonworking husbands) and measurement issues (e.g.
kids may no longer be in the hh but still have had an impact on years
worked and wage gains over time, and longer marriage and older wives
will be more likely to be missing older kids from the hh count) that
make this a very difficult problem.  Have you tried to use an
instrument that is more plausibly unrelated to within-household
choices, e.g. changes in local labor market conditions for mother's
industry/occupation or childcare costs in the areas where people lived
while they were married?  You still have the endogeneity of #children,
spouse's education, and duration of marriage to deal with, of
course...

On Mon, Mar 8, 2010 at 12:55 PM, Paul  Sicilian <siciliap@gvsu.edu> wrote:
> I have both economic and statistical questions regarding output from the
> user-written xtivreg2- command (available from ssc).  I will state my
> questions up-front and then provide some background so that, hopefully,
> the questions will make sense.
>
> My questions are:
> 1) Are we interpreting the endogeneity tests provided by xtivreg2-
> correctly?
> 2) If yes to (1), do the combined results or our FE and IV/EGMM
> regressions (regarding
> children) make either economic or econometric sense to you?
>
> Background
> I am estimating ln(wage) regressions for married men on panel data.
> The r.h.s. variables of interest are wife's education, wife's work
> experience within the marriage and marriage duration (and some
> interactions among these variables). Some papers in this literature
> argue that wife's work experience is endogenous in the husband's wage
> equation and so use IV techniques with  (i) family nonearned income,
> (ii) wife's age (and age squared) and (iii) various measures of the
> number of children in the household as instruments.
>
> I am dubious of using children as an instrument since children can
> affect time use within the marriage, which could affect men's wages.  In
> (non-IV) FE (within person) estimations, I find a statistically
> significant (children) x (wife's work experience) interaction (and also
> a positive (children) x (wife's education) interaction effect (F-stat
> for the test of the joint significance of the children variables =3.05,
> pvalue=0.0276 )).
>
> I also use xtivreg2- to deal with the potential endogeneity of wife's
> work experience. Because of the FE results, I estimate some regressions
> using only family non-earned income, wife's age and wife's age squared
> as instruments. These instruments "pass" the endogeneity test using
> Sargen's J Statistic (p-values around 0.6), but they "fail" the weak
> instruments test (I am following the advice in Baum, Schaffer, and
> Stillmans Stata Journal  (V. 7(4)) article and using the rule of thumb
> that the K-P F-statistic should be greater than 10. I am getting F-stats
> between 3 and 8, depending on sample and specification of the wage
> equation).
>
> However , if I include children (the actual variable is number of
> children in the household), the F-statistic for the test of weak
> instruments is about 67 and the J-test has a p-value still in the 0.6
> range. Moreover, I use the -orthog- option to calculate the C-statistic
> for just the children instrument and that has a p-value around 0.4.
>
> My understanding is that these results imply that children are a
> legitimate instrument, seeming to contradict  the FE estimates that
> suggest children affect mens wages.
>
> Below is an example of an -xtivreg2- command I use (with children as an
> instrument) and the(abbreviated) output from that command.
>
> Thanks for your consideration.
>
> -Paul

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