CREAT: Census Research Exploration and Analysis Tool

Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data

March 2002

Working Paper Number:

tp-2002-06

Abstract

In this paper we provide the exact formulas for the direct least squares estimation of statistical models that include both person and firm effects. We also provide an algorithm for determining the estimable functions of the person and firm effects (the identifiable effects). The computational techniques are also directly applicable to any linear two-factor analysis of covariance with two high-dimension non-orthogonal factors. We show that the application of the exact solution does not change the substantive conclusions about the relative importance of person and firm effects in the explanation of log real compensation; however, the correlation between person and firm effects is negative, not weakly positive, in the exact solution. We also provide guidance for using the methods developed in earlier work to obtain an accurate approximation.

Document Tags and Keywords

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:
estimation, analysis, data, payroll, statistical, agency, model, employee, employed, labor, longitudinal, regression, employing, worker, regressors, associate, census bureau, employer household, longitudinal employer, unemployment insurance, employee data

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:
Service Annual Survey, National Science Foundation, National Bureau of Economic Research, Cornell University, Longitudinal Employer Household Dynamics, AKM, United States Census Bureau

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