Salaried Employment and Earnings in Indonesia: New Evidence on the Selection Bias

Type Journal Article - Applied Economics
Title Salaried Employment and Earnings in Indonesia: New Evidence on the Selection Bias
Author(s)
Volume 45
Issue 19
Publication (Day/Month/Year) 2013
Page numbers 2808-2816
URL http://www.parisschoolofeconomics.com/comola-margherita/pdf/selection.pdf
Abstract
This paper uses household survey data to estimate the determinants of earnings in Indonesia, a country where non-salaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a fullinformation maximum likelihood system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure `a la Heckman (1979), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainments following Duflo (2001). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.

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