Evaluation of the Australian Wage Subsidy Special Youth ...

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(1990) extended and improved the Hausman-Wise model. These models incorporate
attrition into the behavioural model.
Selection modelling is central to our model of intrinsic interest, bivariate modelling of
SYETP and employment outcomes. Accounting separately for attrition within this model,
would require at least trivariate selection modelling. Recent work by Capellari (2001)
uses the multivariate probability approach to account for endogenous panel attrition and
selectivity in earnings, allowing estimation by application of simulated maximum
likelihood techniques for the multi-dimensional integrals. However early examinations by
Schmertmann (1994) found that the estimation approaches available for selectivity
modelling of higher orders were not very good. The estimation suffers from the strict
restrictions that need to be assumed for the bivariate correlations in the error distribution.
It was concluded that in models with many selection criteria, or where sample sizes are
small, the methods would not give good estimates. Furthermore, very strong assumptions
are required about the correlations between response, SYETP participation and
employment, and so on these grounds this method of incorporating attrition with
selection modelling is ruled out for this application. Furthermore, considering the small
sample size we have available, combined with the strength of the assumptions required,
this is beyond the scope of this paper.
5.3 Empirical aspects of the effects of attrition on estimates
Recent examinations of the empirical effects of attrition have raised the argument that the
theoretical potential for attrition bias does not always warrant concern. Fitzgerald et al.
(1998a) concluded that the empirical existence and magnitude of attrition bias was not
clearly related to the size of the attrition rate. They also concluded that attrition which is
random in nature can result in no measurable bias arising in economic modelling, in
accordance with earlier statistical literature (Fitzgerald et al. (1998a): 256).
Further recent studies on the evidence for the effects of attrition bias on estimates in
labour market analysis make stronger claims. Lillard and Panis (1998) p456 argued that
their results for the US panel data Michigan Panel Study on Income Dynamics (PSID)