GEE Estimation of a Two-Equation Panel Data Model: An Analysis of Wage Dynamics and the Incidence of Profit-Sharing in West Germany

Markus Pannenberg and Martin Spieß

No 663, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We propose a generalized estimating equations approach to the analysis of the mean and the covariance structure of a bivariate time series process of panel data with mixed continuous and discrete dependent variables. The approach is used to jointly analyze wage dynamics and the incidence of profit-sharing in West Germany. Our findings reveal a significantly positive conditional correlation of wages and the incidence of profit-sharing. Furthermore, they indicate that permanent unobserved individual ability is comparatively more important in the profit-sharing than in the wage equation and show that shocks have a long-lasting effect on transitory wages but not on the incidence of profit-sharing. Hence, the results support theoretical predictions that selection into profit-sharing is mostly due to unobservable ability and that profit-sharing ties wages more closely to productivity.

Keywords: Generalized estimating equations; covariance structure; longitudinal data; real wages; variable pay (search for similar items in EconPapers)
JEL-codes: C33 C35 D31 J31 J33 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2007
New Economics Papers: this item is included in nep-ecm and nep-lab
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Citations: View citations in EconPapers (3)

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