Practical fixed-effects estimation methods for the three-way error-components model
Martyn Andrews
School of Economic Studies
University of Manchester
Manchester, UK
[email protected]
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Thorsten Schank
Department of Economics
Friedrich-Alexander-Universität Erlangen–Nürnberg
Nürnberg, Germany
[email protected]
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Richard Upward
School of Economics
University of Nottingham
Nottingham, UK
[email protected]
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Abstract. Methods for fixed-effects estimation of the three-way error-components model
are not yet standard. Where possible, we make the fixed-effects methods
originally developed by Abowd, Kramarz, and Margolis (Econometrica 67:
251–333) for linked worker–firm data more accessible. We also show
how these methods can be implemented in Stata. There is a caveat, however.
If the researcher wants to recover estimates of the error components
themselves, and the number of units at the higher level of aggregation is
large, memory or matrix constraints may make using Stata to estimate the
components themselves infeasible.
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Martyn Andrews, Thorsten Schank, Richard Upward
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grouping, linked employer–employee panel data, fixed effects
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