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Evaluation of the Australian Wage Subsidy Special Youth ...

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heteroskedasticity <strong>of</strong> <strong>the</strong> residuals (Maddala (1983): 178). Yatchew and Griliches (1985)<br />

examine <strong>the</strong> effect <strong>of</strong> heteroscedastic errors on <strong>the</strong> probit model. They found that<br />

heteroscedastic errors led <strong>the</strong> usual estimators to be inconsistent but that for small<br />

departures from homoskedasticity <strong>the</strong> parameter vector is simply rescaled if <strong>the</strong> variance<br />

<strong>of</strong> <strong>the</strong> residual is uncorrelated with <strong>the</strong> explanatory variable (Yatchew and Griliches<br />

(1985): 135). They reported that numerical simulations in <strong>the</strong>ir earlier work showed that<br />

biases tended to increase as <strong>the</strong> heteroskedasticity increased, and <strong>the</strong> biases also tended to<br />

be larger when <strong>the</strong> explanatory variable was correlated with <strong>the</strong> heteroskedasticity<br />

(Yatchew and Griliches (1985): 138).<br />

Applying this interpretation to <strong>the</strong>se results, indicates that SYETP may be correlated with<br />

heteroskedasticity <strong>of</strong> <strong>the</strong> variance introducing some bias. One source <strong>of</strong><br />

heteroskedasticity that involves SYETP may be that <strong>the</strong> group <strong>of</strong> SYETP placements are<br />

very heterogeneous units relative to <strong>the</strong> comparison group. The heteroskedasticity would<br />

seem to be small however. The solutions for heteroskedasticity usually rely on specifying<br />

<strong>the</strong> form it takes, which in this case we are not prepared to do. The Huber-White<br />

estimates <strong>of</strong>fer an alternative that roughly adjusts for this problem. These more<br />

conservative estimates <strong>of</strong> variance are applied when weighting is used, and to some<br />

extent this introduces <strong>the</strong> lower statistical significance <strong>of</strong> <strong>the</strong> SYETP employment effect.<br />

O<strong>the</strong>r implications <strong>of</strong> heteroskedasticity, although <strong>the</strong>se may be broad, are not fur<strong>the</strong>r<br />

accounted for here as <strong>the</strong>y are beyond <strong>the</strong> scope <strong>of</strong> this work.

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