Classification and Aggregation: An Application to Industrial Classification in CPS Data

R Cotterman and Franco Peracchi

Journal of Applied Econometrics, 1992, vol. 7, issue 1, 31-51

Abstract: In this paper the authors offer a method for deciding how to aggregate a set of elementary industries. The method is then applied to the problem of estimating a wage equation that allows for industry-specific effects. Their method explicitly formalizes the trade-off between goodness-of-fit and parsimony implicit in an aggregation problem. By varying the parameter of the assumed loss function, one obtains a whole sequence of aggregation levels. Further, the resulting sequence is consistent; that is, groupings formed at one level of aggregation will never be undone when one aggregates further. Copyright 1992 by John Wiley & Sons, Ltd.

Date: 1992
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