Evaluation of the Australian Wage Subsidy Special Youth ...

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restriction was used. If there was no exclusion restriction applied, and identification was
based solely on functional form, then Monte Carlo evidence in the literature indicates that
the modelling suffers from poor performance. The estimation procedure also lacks further
detail, and so it is not clear whether the two equations needed for the Heckman sample
selection model were estimated simultaneously, but it appears that a two step procedure
was applied. If both equations are estimated as probits, then this is inappropriate due to
the nonlinearity of the probit. It was found that the factors affecting referrals did not have
an independent affect on placement. Duration of the current unemployment spell also had
an additional negative effect on placement if selection bias was not controlled for.
Wielgosz found that tests for significance of the selection correction factor indicated no
selection bias. But it was concluded that the very high correlation between the selection
correction factor and the duration of unemployment, coupled with the significance of this
variable when selection bias was not controlled for, suggested that that the sample
selection bias was “…closely and solely related to duration of unemployment” (Wielgosz
(1984): 19). It was further noted that this was because to be referred, and so included in
the sub-sample, was almost completely dominated by the length of unemployment spell.
As a result, due to their correlation the coefficients for selection correction and
unemployment duration were both insignificant in the placement equation because they
reflected the same phenomenon.
Aungles and Stewart (1986) used the same referral and placement data as Wielgosz (1984)
to examine referrals and the duration of unemployment, together with exits from
unemployment. Aungles and Stewart (1986) modelled durations of unemployment, and
also found that the number of referrals jobseekers receive is related to the probability of
leaving unemployment. They found that jobseekers receipt of CES referrals were most
likely to occur early in their unemployment spell, but once referred by the CES,
differences did not exist in the probability of leaving unemployment. The hazard function
for leaving unemployment initially rose to peak at 11 days, less than two weeks, after
which it fell.