Evaluation of the Australian Wage Subsidy Special Youth ...

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those who did not. Modelling only the employment infers that the selection onto the
programme was a random process. The selection problem arises where programme
participants are not selected randomly from the population. The aim of the programme is
to improve employability. Employability after the programme is not observed, but instead
post-programme employment is observed. The probability of participating is not
observed, but participation is observed. The evaluation then needs to resolve the link
between employment and programme participation. The selection modelling problem
occurs if there are unobserved characteristics affecting both participation and postprogramme
employment, for example their employability before the programme.
3.2.2 The estimated model
Richardson (1998) states his estimated model is of the form used by van de Ven and van
Praag (1981). In van de Ven and van Praag (1981) the model was used for the decision to
prefer health insurance with a deductible, to one with complete coverage, and the sample
selection problem arose as a result of non-response. Their extension to the Heckman
(1979) method of sample selection control was to apply it in the probit analysis context,
where not only the first but also the second stage has a discrete dependent variable.
Maddala (1983) points out that the econometric discussion of the consequences of selfselectivity
began with the studies of Gronau (1974), Lewis (1974) and Heckman (1974),
but that it was not until Heckman (1976) that the two stage selection model was
suggested as the solution. Essentially, by fully modelling the entry into participation, then
allowing a correction factor for the participation to be included in the employment model,
the sample selection process affecting employment can be reasonably accounted for.
However, the bivariate probit can also be seen as a system of simultaneous equations, a
simultaneous probit model. More recently, Knapp and Seaks (1998) describe a two
equation recursive probit model and note that the bivariate probit model can be analogous
to the results by Lahiri and Schmidt (1978) for the triangular system of simultaneous
equations with cross equation error correlation.