A General Panel Model With Random and Fixed Effects - A Structural Equations Approach

2/1/2015
AGENERALPANELMODELWITHRANDOMANDFIXEDEFFECTS:ASTRUCTURALEQUATIONSAPPROACH
SocForces.AuthormanuscriptavailableinPMC2011Sep1.
Publishedinfinaleditedformas:
PMCID:PMC3137523
NIHMSID:NIHMS300372
SocForces.2010Sep89(1):134.
doi:10.1353/sof.2010.0072
AGENERALPANELMODELWITHRANDOMANDFIXEDEFFECTS:ASTRUCTURAL
EQUATIONSAPPROACH
KennethA.BollenandJennieE.Brand
KennethA.Bollen,H.W.OdumInstituteforResearchinSocialScience,DepartmentofSociology&Statistics,UniversityofNorthCarolina,ChapelHill
ContributorInformation.
Directcorrespondenceto:KennethA.Bollen,CB3210Hamilton,DepartmentofSociology,UniversityofNorthCarolina,ChapelHill,NC275993210
(Email:bollen@unc.edu)
CopyrightnoticeandDisclaimer
SeeotherarticlesinPMCthatcitethepublishedarticle.
Abstract
Goto:
Fixedandrandomeffectsmodelsforlongitudinaldataarecommoninsociology.Theirprimaryadvantageisthat
theycontrolfortimeinvariantomittedvariables.However,analystsfaceseveralissueswhentheyemploythese
models.Oneistheuncertaintyofwhethertoapplythefixedeffects(FEM)versustherandomeffects(REM)
models.AnotherlessdiscussedissueisthattheFEMandREMmodelsasusuallyimplementedmightbe
insufficientlyflexible.Forinstance,theeffectsofvariables,includingthelatenttimeinvariantvariable,might
changeovertimeratherthanbeconstantasintheusualFEMandREM.Thelatenttimeinvariantvariablemight
correlatewithsomevariablesandnotothers.Laggedendogenousvariablesmightbenecessary.Alternativesthat
movebeyondtheclassicFEMandREMmodelsareknown,buttheyinvolvedifferentestimatorsandsoftwarethat
maketheseextendedmodelsdifficulttoimplementandtocompare.Thispaperpresentsageneralpanelmodelthat
includesthestandardFEMandREMasspecialcases.Inaddition,itprovidesasequenceofnestedmodelsthat
providearicherrangeofmodelsthatresearcherscaneasilycomparewithlikelihoodratiotestsandfitstatistics.
Furthermore,researcherscanimplementourgeneralpanelmodelanditsspecialcasesinwidelyavailablestructural
equationmodels(SEMs)software.Thepaperisorientedtowardsappliedresearcherswithmosttechnicaldetails
givenintheappendixandfootnotes.Anextendedempiricalexampleillustratesourresults.
Introduction
Goto:
Longitudinaldataaremoreavailabletodaythaneverbefore.TheNationalLongitudinalStudyofYouth(NLSY),
NationalLongitudinalStudyofAdolescentHealth(AddHealth),PanelStudyofIncomeDynamics(PSID),and
NationalEducationLongitudinalStudy(NELS)arejustafewofthemorefrequentlyanalyzedpaneldatasetsin
sociology.Therelativeadvantagesoflongitudinaldatacomparedtocrosssectionalarewellknown(Baltagi,
2005:49Halaby2004)andpaneldataarepermittingmoresophisticatedanalysesthanwerepreviouslyavailable.
Insociologytwocommonmodelsforsuchdataarereferredtoastherandomeffectsmodel(REM)andfixed
effectsmodel(FEM)(Allison1994GuoandHipp2004).Indeed,anumberofarticleshavemadeuseoftheFEM
orREMinsociology(e.g.,NielsenandHannan,1977Nielsen,1980Kilbourne,England,Farkas,Beron,and
Weir,1994Alderson,1999AldersonandNielsen,1999ConleyandBennet2000Mouw,2000
VanLaningham,Johnson,andAmato,2001BudigandEngland,2001WheatonandClarke,2003Teachman,
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3137523/
1/24
2/1/2015
2004Yakubovich,2005Beckfield2006Brand,2006Matsueda,Kreager,andHuizinga,2006Shaumanand
Noonan,2007).Amajorattractionofthesemodelsisthattheyprovideawaytocontrolforalltimeinvariant
unmeasured(orlatent)variablesthatinfluencethedependentvariablewhetherthesevariablesareknownor
unknowntotheresearcher.Giventhelikelypresenceofsuchomittedvariables,thisisamajoradvantage.The
REMassumesthattheomittedtimeinvariantvariablesareuncorrelatedwiththeincludedtimevaryingcovariates
whiletheFEMallowsthesevariablestofreelycorrelate(Mundlak,1978).TheREMhastheadvantageofgreater
efficiencyrelativetotheFEMleadingtosmallerstandarderrorsofcoefficientsandhigherstatisticalpowertodetect
effects(Hsiao2003).AHausman(1978)testenablesresearcherstodistinguishbetweentheREMandFEM.
StatisticalsoftwareforREMandFEMisreadilyavailable(e.g.,xtreginStataandProcGLM,ProcMixedin
SAS).
DespitethemanydesirablefeaturesoftheREMandFEMforlongitudinaldata,theyarelimitedbytheway
sociologiststypicallyusethem.First,thereappearstobeconfusionoverwhentousetheREMversusFEM.
Halaby(2004)reviewsanumberofpanelstudiesfromsociologyandconcludesthatmanystudiesignoretheissue
ofunobserveduniteffectsaltogether,ortheyrecognizesucheffectsbutfailtoassessandtakestepstodealwith
theircorrelationwithmeasuredcovariates(p.520).
ResearcherssometimestakefalsecomfortintheuseoftheREMinthatitdoesincludealatenttimeinvariant
variable(individualheterogeneity)withoutrealizingthatbiasedcoefficientsmightresultiftheobserved
covariatesareassociatedwiththelatenttimeinvariantvariable.Second,therearerestrictionsimposedintheusual
estimationofFEMandREMthatmightnotmakesubstantivesenseinsociologicalapplications.Forinstance,both
theusuallyimplementedFEMandREMassumethatthecoefficientsofthesamecovariateremainequalandthe
1
errorvariancesofequationsareequalacrossallwavesofdata. Ifindividualspassthroughmajorlifecourse
transitionsduringthetimeperiodofthestudy(e.g.,activelyemployedtoretiredoradolescencetoadulthood),these
assumptionsofstableeffectscouldbeinvalid.Soinananalysisofsay,incomeseffectonconservatism,astandard
modelforcestheimpactofincomeonconservatismtoremainthesameacrossallwavesofdata.Similarly,the
impactofthelatenttimeinvariantvariableontheoutcomevariableisassumedtobestableacrossallwavesofdata.
Anotherconstraintinthestandardmodelsisthatthelatenttimeinvariantvariablesareeitherfreetocorrelatewith
alltimevaryingcovariatesasintheFEMortheymustbeuncorrelatedwithallcovariatesasintheREM.Even
withstrongpriorevidencethatsomecorrelationsarezeroandsomearenot,theusualmodelsresultinjusttwo
choices,freelycorrelatedoralluncorrelated.Incorrectlyassumingthatthelatenttimeinvariantvariableis
uncorrelatedwiththeobservedcovariatesislikelytobiasestimates.Unnecessarilyestimatingzerocorrelationsasin
theusualFEMusesupdegreesoffreedomandcanincreaseasymptoticstandarderrors.
Yetanotherimplicitconstraintintheusualmodelsisthatthelaggeddependentvariableshavenoeffects.Insome
areas,priorvaluesofthedependentvariableinfluencecurrentvaluesevennetofothervariables.Lastyears
income,forexample,mightinfluencethisyearsincomenetofcontrolvariables,soitwouldbehelpfultoinclude
laggedincomeasanexplanatoryvariable.Furthermore,intheusualFEMandREM,theobservedcovariatesinthe
modelsarenotpermittedtoinfluencethelatenttimeinvariantvariable.
Thereisavastliteratureineconometricsthatsuggestsmodelsandestimatorstoovercomemanybutnotallofthese
limitations(forreviewsseeBaltagiandRaj,1992Wooldridge,2002Hsiao,2003Halaby,2004Baltagi,2005).
Forinstance,interactiontermsofthetimeperiodwithacovariatepermitstheobservedtimeinvariantortime
varyingvariableseffectstodifferbywave(Chamberlain,1984).Whilelaggedvaluesoftimevaryingcovariates
arestraightforwardtoinclude,laggeddependent(endogenous)variablesraiseothercomplicationsintheFEMand
REMthatcanleadtobiasedestimateswithseveralauthorssuggestingsolutions(e.g.,ArellanoandBond,1991
ArellanoandBover,1995).HausmanandTaylor(1981)proposedamethodbywhichobservedtimeinvariant
variablessuchassex,race,placeofbirth,etc.canbeincludedinFEM.
Inthepoliticalscienceliterature,Beck(2001)andWilsonandButler(2007)reviewpanelmethodsthatworkwell
2/24
2/1/2015
whenthenumberofwavesofdataarelargerelativetothenumberofcases.BeckandKatz(1995)recommenda
crosssectionaltimeseriesmodelsthatassumesthatallcaseshaveacommoninterceptandcommonslopesover
time.WilsonandButler(2007)arguethatresearchersshouldtesttheseassumptionsaswellaswhetheralagged
dependentvariableshouldbeincluded.
Avarietyofestimatorsforthesealternativemodelsareproposed.Thisraisestwoissues.Oneisthattheuseof
differentmodelsanddifferentestimatorscomplicatestheabilitytocomparetherelativefitofalternativemodelsto
thesamedata.Thismakesithardtodeterminewhatimprovementstothemodelarenecessaryandwhicharenot.A
practicalrelatedissueisthatnotalloftheseextensionsarereadilyaccessibleinsoftwarepackageswhichtendto
inhibittheiruse.Indeed,Halabys(2004)reviewofthesociologicalliteraturesuggeststhatmostpanelanalysesare
limitedtothestandardFEMorREMwithlittleconsiderationofalternatives.
AnotherlimitationoftheusualapplicationofFEMandREMisthatresearchersmakeverylimitedassessmentsof
thefitoftheirmodeltothedata.WhenstatisticaltestsofthemodelareapplieditistheHausman(1978)test
comparingtheusualFEMandREMthatistypical.TheHausmantestmightlendsupporttooneofthesemodels
eveniftheselectedmodelisaninadequatedescriptionofthedata.Additionaltestsareavailablethatcanprovide
evidenceofmodeladequacy.Aswewillexplain,thestandardFEMandREMareoveridentifiedmodelsthatimply
overidentifyingconstraints.Theseoveridentifyingconstraintsaretestableandprovideevidenceonthevalidityof
theFEM,REM,oralternativespecificationsofmodels.Wealsowillexplainhowitispossibletotestnotonly
whethertheobservedcovariateshavedifferenteffectsfordifferentwaves,buthowtotestthissamepossibilityfor
thelatenttimeinvariantvariables.Thislatterpossibilityisneglectedinthepanelmodelliterature.
ThesetasksarefacilitatedbyhavingageneralpanelmodelthatencompassesnotonlytheusualFEMandREM,
butincludesawidevarietyofextensions.Furthermore,havingacommonestimatorthatpermitscomparisonsof
nestedmodelsandassessestheplausibilityoftheoveridentifyingconstraintsisarealassettothiswork.Our
purposeistopresentageneralpanelmodelthatincludestheusualFEMandREMaswellasavarietyofother
nonstandardmodelsasspecialcases.Wewillexplainhowthegeneralequationaswellasitsspecialcasescanbe
estimated,tested,andcomparedusingstructuralequationmodels(SEMs)andSEMsoftware.Morespecifically,we
willillustratehowtotesttheoveridentifyingrestrictionsoftherandomeffects,fixedeffects,andalternativemodels
tohelpassesstheirrelativefitwewillshowhowtotestwhethercoefficientsorerrorvariancesareequalacross
waveswewillillustratetheestimationofthecovarianceofthelatenttimeinvariantvariableandthetimevarying
observedcovariateswewilldevelopmodelsthatpermitlaggeddependentvariablesorlaggedcovariatesandcreate
modelsthatpermittimeinvariantobservedvariablesinfixedeffectslikemodels.Wealsowilltakeadvantageof
alternativeestimatorsandfitstatisticsfromtheSEMliteraturetoassessthecorrespondenceofthemodelstothedata
andtocomparedifferentmodels.Wewillillustrateourresultsusingamodelanddatafromanexcellentempirical
applicationoftheusualFEManditsestimationtodemonstratethatwecangainnewinsightswiththisapproach
eveninawellexecutedstudy.
AfewpriorpapershavedrawnconnectionsbetweenSEMsandrandomorfixedeffectspanelmodels.An
unpublishedconventionpaperbyAllison&Bollen(1997)andaSASpublicationbyAllison(2005)discussSEM
setupsofthestandardFEMandREM.Teachman,Duncan,Yeung,andLevy(2001)lookattheFEMinSEM,
butconcentratetheirdiscussionandexampleoncrosssectionaldatawithclustersoffamiliesratherthanpaneldata.
Finally,Ejrnaes&Holm(2006)lookatdifferenttypesoffixedeffectsestimatorsinpaneldatamodels,butdonot
covertheREM,laggeddependentvariablemodels,orsomeoftheothervariantsthatweincludehere.Noneof
thesepaperspresentsourgeneralpanelmodel,theydonotdiscusstestingtheequalityofparametersovertimeor
treatsupplementalfitindices,andtheydonotprovidethejustificationforthemaximumlikelihoodestimatorfor
modelswithlaggeddependentvariables.
OurpaperisorientedtoreaderswhohavehadexperiencewiththestandardFEMorREM.Ourcitationsaboveto
recentsubstantiveliteraturerevealtheirpresenceinabroadrangeoffieldsinsociologyandsuggestthatthese
3/24
2/1/2015
techniqueshavewideappeal.Ourreadingoftheliteraturealsosuggeststhatthereissomeconfusionamong
practitionersregardingwhentouseonemodelversustheother.Wedonotintendourresultsonlyforspecialistsin
quantitativemethods.Despitethegeneralityandflexibilityofourmodels,theycanbeimplementedwithanyofthe
numerousSEMsoftwareprograms(e.g.,LISREL,AMOS,Mplus,EQS,etc.)thatarewidelyavailable.Becauseof
ourintendedaudience,fulltechnicaldetailsarenotprovidedinthetext,butarereservedforfootnotes,the
appendix,andinthecitedworks.
Thenextsectionwillpresentthenotation,ageneralpanelmodel,anditsassumptions.Followingthisare
subsectionsonrestrictedformsofthegeneralpanelmodel,theFEM,theREM,andthegeneralpanelmodelwith
laggedvariables.Sectionsonestimationandtestingmodelfitfollow.Thenanextendedempiricalexample
illustratesmanyoftheresults.Theconclusionreviewsthecapabilitiesandlimitationsofourapproach.Anappendix
providesmoretechnicaldetailsincludingajustificationofthemaximumlikelihood(ML)systemestimatorinSEMs
withlaggeddependentvariables.
GeneralPanelModel
Goto:
Inthissection,werepresentageneralpanelmodelthatenablesustoconsiderindividualheterogeneity(latenttime
invariantvariables)asintheusualFEMandREM,butpermitsadditionalstructuresforcomparison.Therearetwo
versionsofthismodel,onewithalaggeddependentvariableasacovariateandanotherwithoutit.Wepresentthe
latterfirstandshowhowwecanderivethewellknownrandomeffects,fixedeffects,andalternativemodelsby
imposingrestrictionsonthisgeneralpanelmodel.Inaseparatesubsectionweintroducelaggedendogenous
variablesintothisgeneralpanelmodel.
Considerthefollowingequation
it
= B yxt x it + B yzt z i + t
+ it
whereyitisthevalueofthedependentvariablefortheithcaseinthesampleatthetthtimeperiod,xitisthevector
oftimevaryingcovariatesfortheithcaseatthetthtimeperiod,Byxtistherowvectorofcoefficientsthatgivethe
impactofxitonyitattimet,ziisthevectorofobservedtimeinvariantcovariatesfortheithcasewithByztarow
vectorofcoefficientsattimetthatgivetheimpactofzionyit.Theiisascalarofallotherlatenttimeinvariant
variablesthatinfluenceyitandtisthecoefficientofthelatenttimeinvariantvariable(i)attimetandatleastone
ofthesetissettoonetoprovidetheunitsinwhichthelatentvariableismeasured(e.g.,set1=1).Theitisthe
randomdisturbancefortheithcaseatthetthtimeperiodwithE(it)=0andE ( 2it ) = 2 .Italsoisassumed
thatitisuncorrelatedwithxit,zi,andiandthatCOV(it,is)=0forts.Asanexample,yitmightbetheinfant
mortalityrateincountyiattimet,xitmightconsistoftimevaryingvariablessuchasunemploymentrate,
physicianspercapita,medicalexpenditurespercapita,etc.allforcountyiattimet,zimightbetimeinvariant
variablessuchasregionandfoundingdateofcounty,andiwouldcontainallothertimeinvariantvariablesthat
influenceinfantmortality,butthatarenotexplicitlymeasuredinthemodel.Theirepresentsindividual
2
heterogeneitythataffectstheoutcomevariable. Weassumethatiisuncorrelatedwithziifbothareincludedin
thesamemodel.
t
Notethatialwaysindexesthecasesinthesamplewhiletindexesthewaveortimeperiod.Ifeithersubscriptis
missingfromavariableorcoefficient,thenthevariableorcoefficientdoesnotchangeeitheroverindividualsor
overtime.Forinstance,ziandihavenotsubscript,butdohaveanisubscript.Thismeansthatthesevariables
3
varyacrossdifferentindividuals,butdonotchangeovertimeforthatindividual andaretimeinvariantvariables.
Inasimilarfashion,theabsenceofansubscriptmeansthatthecoefficientsinthemodeldonotchangeover
individuals.Ifatimeperiodorwaveofdataweredistinct,thenwecouldincludeadummyvariable,sayDt,thatis
4/24
2/1/2015
thesamevalueacrossallindividualsbutcoulddifferovertime.
GeneralPanelModelandRestrictiveForms
Goto:
Thegeneralpanelmodelinequation(generalmodel)incorporatestheusualREMandFEMasspecialcasesand
goesconsiderablybeyondtheseoptions.Indeed,therearenumerousvariantsofthegeneralpanelmodelandalarge
numberofmodelsthataresearchercouldchoose.Forinstance,supposeresearchersarestudyingconservatism
amongindividuals.Assumethattherelationshipsbetweenauthoritarianpersonalityandotherlatenttimeinvariant
variablesandconservatism(yit)increasesovertime.Allowingttoincreaseratherthanalwaysbeingequaltoone
wouldpermitustoaccommodatethechangingrelations.Ortheeffectsofeducation,race,andincomeon
conservatismmightvarywithageandthesedifferencesincoefficientsforthesamevariableovertimearepermitted
inthegeneralpanelmodel.Ontheotherhand,ifthecoefficientsforthesamevariableareerraticandwithout
discernablepatternsatdifferentwaves,thisraisesquestionsaboutthespecificationofthemodel.Inbrief,the
generalpanelmodelenablesustovarythecoefficientsofanyoftheobservedorlatentvariableswhilealsoserving
asasensitivitytestofthemodelspecification.
Givenourgeneralpanelmodel(yit=Byxtxit+Byztzi+ti+it),weneedamethodtoselectmorerestrictive
modelstowhichwecancompareitsfittothedata.Ifaresearcherisinthefortunatesituationtohavepriorstudies
ortheoriessuggestaformulation,thenthishypothesizedmodelisadesirablestartingpoint.Morecommonly
knowledgeinanareaisinsufficientlydevelopedtoprovidesuchspecificguidance.Aforwardmodelsearch
strategybeginswithamodelmuchmorerestrictivethanthegeneralpanelmodelandliftsrestrictionsuntilthe
researcherjudgesthefitofthemodeltobeadequate.Sothestandardrandomeffectsmodel(REM)couldbethe
startingpointandifitsfitisnotgood,theresearchercouldtestwhetheritsignificantlyimprovesby,say,allowing
theerrorvariancestodifferovertime.Ifthemodelfitisstilllacking,thentheresearchercouldtryahybridmodel
thatletsxitandicorrelate.Thisprocesscouldcontinueuntilthemodelfitisacceptable.Sothemodelingprocess
isoneofmovingfrommorerestrictivetolessrestrictivemodelsandstoppingwhenthefitpassessomestandard.
Abackwardsmodelsearchstrategybeginsbyfittingthegeneralpanelmodelofyit=Byxtxit+Byztzi+ti+it.
4
Toidentifythismodelweconstrainthecorrelationsofzianditozero andsetoneofthetstoone(e.g.,1=1).
Thisistheleastrestrictivemodel.Ifitdoesnotfitthepaneldata,itisdoubtfulthatmorerestrictiveformsofthe
generalpanelmodelwill.Ifitdoesfit,thenwecouldimposefurtherrestrictionsuntilwejudgethatthefittothe
dataisinadequate.Table1outlinesageneralstrategyoffittingmodelsfromlesstomorerestrictivewhenprior
knowledgedoesnotpointtoasingle,specificmodel.
Table1
GeneralPanelModelandSpecialCases
AssumingthatthegeneralpanelmodelatthetopofTable1fitsthedata,thenresearcherscanturntoamodelthat
constrainstheeffectsofthelatenttimeinvariantvariable(i)tobeequalovertimeasshowninoption(1)in
Table1.Option(1)isnestedinthegeneralpanelmodel,soasweexplaininthesectiononModelFit,wecantest
whetherthereisastatisticallysignificantdeclineinfitbyimposingtherestrictionoft=1forallwaves.Ifoption
(1)hasanadequatefit,thenresearcherscanimposeanadditionalrestrictionthatthecoefficientsfortheimpactof
eachobservedtimeinvariantvariableisequalovertime(option(2)inTable1).Withthisrestriction,wehaveboth
thelatentandobservedtimeinvariantvariableshavingstableinfluencesovereachwaveofdata.Ifoption(2)
provestobeagoodfit,thenwecanintroducetheadditionalconstraintthatthecoefficientsforthetimevarying
variablesmaintainthesamevaluesovertime(Byxt=Byx)(option(3)inTable1).
Ifthemodelrepresentedbyoption(3)inTable1fits,thenweintroducedifferenttypesofrestrictionsintheother
5/24
2/1/2015
options.Option(4)keepsallcoefficientsequalovertime,butalsoconstrainsthecorrelationsofthetimevarying
variables(xit)withthelatenttimeinvariantvariable(i)settozero.Table1pointstotwodifferentoptions
dependingonthefitofthemodelrepresentedinoption(4).Ifwefailtorejectoption(4),thenoption(5)(a)
introducestheadditionalconstraintoftheerrorvariancesbeingequalforallwavesofdata.Ifwedorejectoption
(4),thenoption(5)(b)returnstothemodelinoption(3)wherethetimevaryingandlatenttimeinvariantvariables
correlateandconstrainstheerrorvariancestobeequalovertime.Table1doesnotshowallpossibleoptionsitis
meantmoreasanillustrationratherthantheonlywaytoproceed.Forinstance,iftherestrictionoft=1forall
wavesdoesnotholdwecouldremovethisrestrictionbutstillcheckwhetherByxt=Byxholds.Insuchaseriesof
specifications,wewouldnotrecoverthestandardREMandSEM.WeencouragereaderstoviewTable1as
providingguidelinesratherthanarigidsequenceofsteps.TheREMandFEMaresuchimportantrestrictiveforms
ofthegeneralpanelmodelthatthenexttwosubsectionswilldiscussthemmorefully.
RandomEffectsModel(REM)
Goto:
TheRandomEffectsModel(REM)isoneofthemostpopularmodelsforpaneldata.Table1option(6)indicates
thattheREMisequivalenttothemodelofoption(5)(a).Ifweassumethatthecoefficientsofthetimevarying
variables(xit),oftheobserved(zi)andlatent(i)timeinvariantvariablesdonotchangeovertime(i.e.,Byxt=Byx
2
Byzt=Byz,andt=1,respectivelyforallt),thattheequationerrorvariancesareequal( t
uncorrelatedwithxitandzi,thenequation(generalmodel)becomes
it
= B yx x it + B yz z i +
),andthatiis
+ it
whichistheusualREM.ComparingthistothegeneralpanelmodelwecanseethattheREMassumesthatall
explanatoryvariables(i.e.,xit,zi,i)haveeffectsonyitthatarethesameoveralltimeperiods.Furthermore,the
REMallowsthetimevaryingobservedvariablesinxitandthetimeinvariantobservedvariablesinzitocorrelate,
butnoneoftheseobservedvariablesispermittedtocorrelatewiththelatenttimeinvariantvariable,i.The
assumptionthatiisuncorrelatedwithxitandziissimilartotheassumptionthatthedisturbanceinacrosssection
isuncorrelatedwiththeobservedexplanatoryvariables.Themaindifferenceisthatwithpaneldatathereare
circumstanceswhenwecanpartiallytestthisassumptionaswewilldescribeinouttreatmentoftheFEM.
Figure1isapathdiagramrepresentationofaREMthatiskeptsimplewithasingletimevaryingvariable(x)for
fourwavesofdataandasingletimeinvariantvariable(z1).Apathdiagramisagraphthatrepresentsa
multiequationsystemanditsassumptions.Byconvention,boxesrepresentobservedvariables,ovalsrepresentlatent
variables,singleheadedstraightarrowsrepresentthedirecteffectofthevariableatthebaseofthearrowonthe
variableattheheadofthearrow,andtwoheadedarrowssuchasthoseconnectingthexsandz1standforpossible
associationsbetweentheconnectedvariableswherethatassociationistakenaccountof,butnotexplainedwithin
5
themodel. Tosimplifythenotationtheisubscriptisexcludedforthevariables.Itisnoteworthythatthelatent
timeinvariantvariable()ispartofthemodel,butitisshowntobeuncorrelatedwiththetimevaryingvariables
(xt)andthetimeinvariantvariable(z1)sincetherearenotwoheadedarrowslinkingittotheobservedvariables.
Thedirectimpactofthelatenttimeinvariantvariable()ontherepeatedmeasures(ys)isequalto1asisimplicitin
theequationfortheREM.
Figure1
ClassicRandomEffectsModelinPathDiagram
6/24
2/1/2015
FixedEffectsModel(FEM)
Goto:
Returningtothegeneralpanelmodelinequation(generalmodel),supposethatwekeepthecoefficientsforthe
timevaryingvariablesequalforallwaves(Byxt=Byx,t=1),wedropByztzi,weallowthelatenttimeinvariant
2
variables(i)tocorrelatewith,andwesettheequationerrorvariancesequal( t
Table1andleadsequation(generalmodel)tobecome
it
= B yx x it +
)Thisisoption(7)in
+ it
whichistheequationfortheusualfixedeffectsmodel(FEM).
ThemostobviousdifferencebetweentheFEMandtheREMoneistheabsenceofByzzi.Thesearethetime
invariantobservedvariablesandtheircoefficients.TheusualFEMdoesnotexplicitlyincludethesevariables,but
ratherfoldsthemintoi,thelatenttimeinvariantvariable.ThereasonisthattheFEMallowsitocorrelatewithxit
andifwewerealsotoincludetimeinvariantobservedvariables(zi),thesewouldbeperfectlycollinearwithiand
wecouldnotgetseparateestimatesoftheeffectsofiandzi.Hence,weallowitoincludeziaswellaslatent
timeinvariantvariables.Thoughlosingtheabilitytoestimatetheimpactoftimeinvariantvariablessuchasrace,
sex,etc.isadisadvantage,westillarecontrollingfortheireffectsbyincludingiinthemodel.Inaddition,wehave
apotentiallymorerealisticassumptionthatallowstheivariabletocorrelatewiththetimevaryingcovariatesinxit.
Inthehypotheticalexampleofinfantmortalityratesincountiespresentedabove,wecouldnotincludethetime
invariantvariablesofregionandfoundingdateexplicitlyinthemodel.Buttheseandallothertimeinvariant
variableswouldbepartofiandhencecontrolled.Ifaresearcherisnotexplicitlyinterestedinthespecificeffects
ofthetimeinvariantvariables,thenthisisnotaseriousdisadvantagesincethepotentiallyconfoundingeffectsofall
timeinvariantvariableswouldbecontrolled.Inaddition,weallowthesetimeinvariantvariablestocorrelatewith
thetimevaryingvariablessuchasunemployment,physicianspercapita,andsoon.
Figure2isapathdiagramrepresentationofaFEMwithasingletimevaryingvariable.Wedropzigivenitsperfect
collinearitywithi.Easilyvisiblewithinthediagramisthecovarianceofthetimevaryingx1tandthatispartof
theFEMspecification.ButonedifferencefromtheusualimplementationofFEMisthatthecovariancesofthe
timevaryingvariableswithareanexplicitpartofthemodel.Thiscanprovidetheresearcherabettersenseofthe
propertiesoftheselatenttimeinvariantvariablesandtheirpatternofassociationsinthataresearchercanestimate
thecorrelationwithobservedcovariates.Theequalityofthecoefficientsfromx1ttoytisshownbyusingthesame
coefficientforeachpathasisthecoefficientof1fromtoyt.Belowwewillpresentanempiricalapplication
wheretherepeatedmeasure(yt)iswages,thenumberofchildrenisatimevaryingcovariate(x1t),andallomitted
timeinvariantvariables(e.g.,intelligence,motivation,otherstablepersonalitytraits)arecombinedinwiththis
latentvariablepermittedtocorrelatewithx1t.
Figure2
ClassicFixedEffectsModelinPathDiagram
NotethatiftheREMdoesnotincludezi,thentheREMandFEMarenestedandonlydifferinthattheFEMallows
xitanditofreelycorrelatewheretheREMrestrictsthemtobeuncorrelated.IftheREMdoesincludeziandthe
FEMdoesnot,thenthemodelsarenotnested.ButifweincludeziintheFEMwhilekeepingituncorrelatedwith
i,weareledtothemodel5(b)whichisnestedintheREM5(a).ThesetwodifferonlyinthattheREMassumes
6
7/24
2/1/2015
6
thatthecovariancesofthetimevaryingxitandiarezerowhereasmodel5(b)doesnot.
ViewingtheREMandFEMfromtheperspectiveofthemoregeneralpanelmodelinequation(generalmodel),
thesemodelsaretwoimportantspecialcases,butthereareothermodelswhichmightbettercorrespondtoour
theoreticalandsubstantiveideasandwhichmightbetterexplainourpaneldata.Wecanenrichthesemodelsfurther
byconsideringlaggedeffectsaswedointhenextsubsection.
GeneralPanelModelwithLaggedEffects
Goto:
Researcherscanaddlaggedvaluesofthetimevaryingcovariatestothevector,xit.Thecostofdoingsoistheloss
ofthefirstwaveofdatasincethelaggedvalueofthetimevaryingcovariateisnotavailableforthefirstwaveof
dataandthuscannotbeincluded.Laggedendogenousvariablesforautoregressiveeffectsarealsostraightforward
toinclude.Wemodifythegeneralpanelmodelinequation(generalmodel)toincludealaggedendogenous
variable:
it
= y
t
it1
+ B yxt x it + B yzt z i + t
+ it
wherethenewsymbolistheautoregressivecoefficienttoftheeffectofyit1onyit.Wecangettomorefamiliar
modelsbyintroducingrestrictions.AmodifiedversionoftheFEMwithequalautoregressiveparameterswouldbe
it
= B yx x it + y
it1
+ it
Thefirstwaveyi1shouldbetreatedaspredeterminedandcorrelatedwiththetimevarying(xit)andlatenttime
invariantvariables(i).Figure3isamodifiedversionofFigure2thatincludesthelaggedendogenousvariable.
Allison(2005:135)mentionsasimilar,simplerFEMwithasinglexvariable,butstatesthatithasnotbeen
investigatedanalytically.TheAppendixofthispaperpresentsageneralversionofthismodelandtreatsits
formulationandestimation.
Figure3
FixedEffectsModelwithLaggedDependentVariables
Anaddedcomplicationtocheckwithlaggedendogenousvariablesiswhetherthereisanautoregressive
disturbance.Thisisparticularlyproblematicifpresentwithalaggeddependentvariablesinceitcreatesacorrelation
betweenthedisturbanceandexplanatoryvariable.Wecantreatthisbyaddinganautoregressiverelationbetween
thedisturbanceterm.WecouldfurthermodifyFigure3toincludeanautoregressivedisturbanceprovidedweallow
anassociationbetweeni2andyi1thatwouldbecreatedbytheautocorrelation.Itisalsopossibletoinclude
additionallaggedvaluesofthecovariatesortheendogenousvariable.Furthermore,wecouldcreateavarietyof
specialcasesofequation(laggedgeneral)inananalogouswaytowhatwedidinTable1butaddingthe
autoregressivetermt.Toconservespacewedonotpresenttheseextensions,butinsteadturntotheestimationand
assessmentofmodelfitusingtoolsfromstructuralequationmodels.
Estimation
Goto:
Equation(generalmodel)isthegeneralpanelmodelthatincorporatesthestandardFEM,REM,andothermodels
thatwehavepresentedexceptforthosewiththelaggedendogenousvariableswhichisinequation(lagged
8/24
2/1/2015
general).Thelatterwewilldiscusslater.Theliteratureonpanelmethodshasproposedavarietyofestimatorsfor
differentspecialcasesofthismodel.Forinstance,theLeastSquaresDummyVariable(LSDV)estimatorispopular
fortheusualFEMin(fixedeffects)andgeneralizedleastsquares(GLS)isacommonchoicefortheusualREMin
equation(randomeffects).Toenhancethecomparisonofmodelswewillusethesamemaximumlikelihood
estimatorforbothofthesemodelsaswellasthemodelextensionsproposed(seeappendix).Structuralequation
model(SEM)softwareiswellsuitedtoestimatethesemodelsinthatithasavarietyofestimatorsanditallows
latentvariablessuchasi.ThedefaultanddominantestimatorforcontinuousdependentvariablesinSEMisthe
maximumlikelihoodestimator(MLE).TheMLEisderivedundertheassumptionthatyit,conditionalonxitandzi,
[yit|xit,zi]comesfromamultivariatenormaldistribution(Jreskog1973Bollen1989:12628).Underthese
7
conditions,thecoefficientsandparameterestimatesofthemodelhavethedesirablepropertiesofMLE. The
appendixgivesamoreformalpresentationofthemodelandMLEfittingfunctionforSEMs.Thereismuchwork
intheSEMliteraturethatexaminestherobustnessoftheMLestimatortothenormalityassumptionanditfinds
conditionswhereitisnotrequiredforaccuratesignificancetests(e.g.,Satorra,1990).
Furthermore,thereareotherreadilyavailableestimatorsforSEMsthateitherdonotrequirenormaldisturbancesor
thatcorrectfornonnormality(e.g.,BollenandStine1990e.g.,BollenandStine1992SatorraandBentler1994).
Thismeansthatwhenrequiredwehavealternativeestimatorsthatpermitdisturbancesfromnonnormal
8
distributions.
ApracticalmatterinusingtheSEMsoftwareispreparingthedataset.Paneldatacommonlyappearsinoneoftwo
forms.Oneisthelongformwhereobservationsofthesameindividualarestackedontopofeachother.Eachrow
ofthedatasetinasampleofindividualsoverseveralyearsisapersonyear.Inthewideformofdata,bycontrast,
eachrowreferstoadifferentindividual.Thevariablesgivethevariablevaluesforaparticularindividualina
particularwaveofthedata.ThewideformismostsuitablefortheSEMapproach.Statisticalsoftwarehaveroutines
thatenableeasymovementbetweenthelongandwideformofpaneldata(e.g.,inStata,reshape)
MissingData
Goto:
Attritionorothersourcesofmissingvaluesonvariablesinpanelanalysisiscommon.Inpaneldatabalancedand
unbalanceddataaretermsthatcapturethepossibilitythatadifferentnumberofwavesofdataareavailablefor
differentcases.Theunbalanceddesignimpliesmissingdata.InaSEMtherearetwooptionsfortreatingdatathat
areMissingCompletelyatRandom(MCAR)orMissingatRandom(MAR)(LittleandRubin,1987Schafer,
2000).OneisthedirectMLEapproachthatallowsthevariablesavailableforacasetodifferacrossindividualsand
thatestimatestheparameterswithallofthenonmissingvariableinformation(Arbuckle,1996).Thesecondoption
ismultipleimputationwheremultipledatasetsareimputed,estimated,andtheirestimatescombined.Weapplythe
directMLEinourapplication.DirectMLEformsthelikelihoodforeachcaseinthesampleusingallvariablesthat
arenotmissingforthatcase.Nodataareimputed.Ratherthecontributionofacasetothetotallikelihoodwill
dependonthenumberofobservedvariableswithcompleteinformationforacase(Arbuckle,1996Wothke,
9
2000).MostSEMsoftwarenowhavethedirectMLEcapabilitytohandlemissingdata. Eitheroftheseapproaches
requirestheanalysisoftherawdataratherthanthecovariancematrixoftheobservedvariables.
TestsofModelFit
Goto:
BorrowingfromtheSEMliterature,wecanformtestsofoverallmodelfitforourpaneldatamodels.Ifamodelis
exactlycorrect,thenullhypotheses(Ho)of
= ()
= ()
9/24
2/1/2015
aretruewhereandarethemeansandcovariancematrixoftheobservedvariablesand()and()arethe
modelimpliedmeansandcovariancematrixoftheobservedvariables.Thethatispartofthemodelimplied
meansandcovarianceconsistsofthefreeparameters(e.g.,coefficients,errorvariances,etc.)ofamodel.Each
modelimpliesaparticularformof()and()thatpredictsthemeansandcovariancematrix.SeetheAppendix
fortheseimpliedmomentmatricesforourmodels.Inlightofthis,thenullhypothesisinequation(momentHo)isa
testofthevalidityofthemodel.Rejectionsuggeststhatthemodelisincorrectwhilefailuretorejectsuggests
consistencyofthemodelwiththedata.
TheMLEprovidesareadilyavailableteststatistic,sayT,thatisalikelihoodratio(LR)testthatasymptotically
followsachisquaredistributionwithdegreesoffreedomofdf
= (
1
2
)P (P + 3) t
wherePisthenumber
ofobservedvariablesandtisthenumberoffreeparametersestimatedinthemodel.The( )P (P + 3) isthe
numberofvariances,covariances,andmeansoftheobservedvariablesthatprovideinformationonthemodel
parameters.ComparingTtoachisquaredistributionwithdfatagivenTypeIerrorrateleadsustorejectorfailto
rejectHo.
1
2
TheLRtestofHo:=()&=()canhaveconsiderablestatisticalpowerwhenthesampleislarge.Even
minormisspecificationsinthemodelcanleadtoitsrejection.Inpractice,thismeansthatnearlyallmodelswillbe
rejectedinasufficientlylargesampleandthismightbeduetoerrorsinspecificationthatmostwouldconsider
trivial.SeeSatorraandSaris(1985)orMatsuedaandBielby(1986)formethodstoestimatethestatisticalpowerof
thechisquaretestofequation(momentHo).
AlternativemeasuresoffithaveemergedintheSEMliterature.Theliteratureonthesefitindicesisvast(e.g.,
BollenandLong,1993HuandBentler,1998)andwedonothavethespacetofullyreviewthese.However,
Table2listsseveralfitindicesthatwehavefounduseful.Currentguidelineswoulddescribeamodelsfittothe
dataasinadequateiftheTuckerandLewis(1973)Index[TLI],theBollen(1989)IncrementalFitIndex[IFI],or
theMcDonaldandMarsh(1990)Bentler(1990)RelativeNoncentralityIndex[RNI]islessthan0.9.IftheSteiger
andLind(1980)RootMeanSquareErrorofApproximation(RMSEA)isgreaterthan0.1oriftheSchwarz(1978)
BayesianInformationCriterion(BIC)ispositive(seeRaftery,19931995),thenthemodelisgenerallynot
10
acceptable. Ingeneralitisgoodpracticetoreportseveralfitindicesalongwiththechisquareteststatistic(T),
degreesoffreedom,andpvalue.TheHausmanTestprovidesanotherwaytocompareFEMandREM,whenthese
areamongthemodelsestimated.Sincetheseindicesandtestsmeasuremodelfitindifferentways,theywillnot
alwaysleadtoanunambiguousbestmodel.Thismeansthattheresearchermusttakethesefitstatisticsin
conjunctionwithpriorstudiesandknowledgeofthesubstantivearea,andperhapsfurtherguidedempirical
explorationofthedataincomingtoanassessmentofwhichmodelappearstobestrepresentthesocialworld.We
illustratetheseideasinourempiricalexample.
Table2
Modelfitindicesandtheirdefinitions
ComparisonsofModels
Goto:
Inourpresentationwedescribedanumberofmodelsashavingrelationswheretheparametersofonemodelwerea
restrictedformofanother.Table1providesanumberofexamples.Wecanusethelikelihoodratio(LR)testto
comparesuchnestedmodels.TheLRchisquareanddegreesoffreedomassociatedwiththeleastrestrictedmodel
issubtractedfromthemodelwithfewerrestrictions.AnewLRchisquareteststatisticanddegreesoffreedom
resultswhichtestswhetherthemostrestrictivemodelfitsaswellasthemorerestrictedone.Anonsignificantchi
squareisevidenceinsupportofthemorerestrictedmodelwhereasasignificantchisquaresupportstheless
restrictedmodelassumingthatthelessrestrictedmodelfits.ThisLRchisquaredifferencetestallowsustotestsuch
10/24
2/1/2015
hypothesesaswhethertheerrorvariancesorthevariablecoefficientsarethesameovertime.
Thefitindicesdescribedabovearealsoatooltocomparedifferentmodelstructures.Wealreadyhavementioned
howtheBICwiththelowestvalueindicatesthebestfit.Differencesintheotherfitindicesmightalsoprovide
usefulinformation,thoughinourexperience,thedifferencesintheseotherfitindicescanbemoredifficultto
interpretthantheBIC,becausethedifferencesintheformeraresmallinmagnitude.
WagePenaltyEmpiricalExample
Goto:
Weillustrateavarietyoftheprecedingmodelsbyexaminingthewagepenaltyformotherhoodusingdatafromthe
NationalLongitudinalSurveyofYouth(NLSY).TheNLSYisanationalprobabilitysampleof12,686youngmen
andwomenwhowere14to22yearsoldwhentheywerefirstinterviewedin1979blacksandHispanicsare
oversampled.Theseindividualswereinterviewedannuallythrough1994andbiannuallythereafter.Webeginby
generallyreplicatingtheresultsfromanearlierstudybyBudigandEngland(2001),whoexamineddatafromthe
198293wavesoftheNLSYwedifferinthat,forsimplicity,weonlyanalyzeeveryotheryear,i.e.1983,1985,
1987,1989,1991,and1993.Thecoefficientsarequitesimilartothoseforall12yearsofdata(notshown).Budig
andEnglandwereinterestedinwhethertherelationshipbetweennumberofchildrenandwomensearningsis
spuriousorcausal,andusetheFEMtoaddressthisquestion.ThisstudybuildsonastillearlierstudybyWaldfogel
(1997),whichalsousesacommonFEMtoexaminethewagepenaltyformotherhood.BudigandEnglandsstudy
isanexcellentempiricalapplicationoftheusualFEM.Nevertheless,wewillshowhowwegainnewinsightsusing
ourapproach.
Welimitoursampletowomenemployedparttimeorfulltimeduringatleasttwooftheyearsfrom198293,to
replicateBudigandEnglandssampleselection.Outofatotalof6,283womeninthe1979NLSY,wehaveafinal
11
samplesizeof5,285women. Thedependentvariableisloghourlywagesintherespondentscurrentjob,where
personyearswhosehourlywagesappeartobeoutliers(i.e.,lessthan$1orabove$200perhour)areeliminated.
Themainindependentvariableofinterestisthetotalnumberofchildrenthatarespondentreportedbytheinterview
12
date. Ourfirstmodel,Model1,includesonlynumberofchildrenasacovariate.InModel2,wecontrolfor
maritalstatususingdichotomousmeasurestoindicatemarriedanddivorced(includingseparatedandwidowed),
wherenevermarriedisthereferencecategory.InModel3,wefurthercontrolformeasuresofhumancapital
includingyearsofeducationalattainment,currentschoolenrollment,yearsoffulltimeandparttimework
13
experience,yearsoffulltimeandparttimejobseniority,andthetotalnumberofbreaksinemployment. Budig
andEnglandalsoincludedafourthmodelwitharangeofjobcharacteristics.However,theyfindthatthese
additionalvariablesdolittletochangetheirestimatesofthewagepenaltyformotherhood.Wethereforeonly
replicatethefirstthreemodels.Foralltheirmodels,BudigandEnglandconductaHausmantesttoassesswhether
REMswereadequate,andinallcases,theyfindthatthetestsupportstheFEM.Therefore,theydonotpresentthe
estimatesforREM,onlyforFEMandtheOLSestimator.
REMandFEMasSEMs
Goto:
WefirstdemonstratehowwecanestimatethestandardREMandFEM,aswellasahybridofthesemodelsina
SEMframework.ToestimatemodelsintheSEMframework,weusedatainwideformatandestimateallmodels
usingMplus4.0.WeapplythedirectMLE(Arbuckle1996)thatestimatestheparameterswithallofthe
nonmissingvariableinformation.Table3providesestimatesforseveralmodelspecificationsintheSEM
framework.ThefirstthreecolumnscorrespondtothestandardREMandnextthreecolumnstothestandardFEM,
butestimatedintheSEMframework.WecomparedtheseestimatestothoseobtainedinStatafortheusualREM
andFEMandtheestimateswerevirtuallyidenticalexceptforrounding.Wewouldexpectthissincewehave
programmedtheSEMformulationstomatchthespecificationsoftheREMandFEM.Hencewecanreproducethe
resultsoftheREMandFEMusingSEM.However,theSEMresultsprovideadditionalinformationbywayofthe
measuresofmodelfit.
11/24
2/1/2015
Table3
SEMCoefficientsfortheEffectsofTotalNumberofChildrenandControls
(ConstrainedtobeEqualoverTime)onWomensLogHourlyWages:
NLSY1983,1985,1987,1989,1991,1993
ThemodelfitstatisticsthatweincludearetheLikelihoodRatio(LR)teststatistic(Tm),degreesoffreedom(df),
IFI/RNI,RMSEA,andBIC.WedescribedthecalculationofthesefitindicesinTable2.InTable3,thechisquare
LRteststatisticthatcomparesthehypothesizedFEMorREMtothesaturatedmodelleadstoahighlystatistically
significantresult,suggestingthatthesehypothesizedmodelsdonotexactlyreproducethemeansandcovariance
matrixoftheobservedvariables.Withover5,000casesinthissample,theLRchisquaretesthasconsiderable
statisticalpowertodetectevensmalldeparturesofthemodelfromthedata.Inlightofthisstatisticalpower,itisnot
surprisingthatthenullhypothesesarerejectedforthesemodels(p<0.001).
Thesupplementalfitindicesprovideanadditionalmeansbywhichtoassessmodelfit.BoththeREMandFEMfor
themodelwithnocontrols(Model1)andthemodelthatcontrolsformaritalstatus(Model2)havevaluesofIFI
andRNIexceeding0.90,acommoncutoffvalue.However,valuesofRMSEAareoftengreaterthan0.05and
valuesofBICarepositive,indicatingproblemswithmodelfitforModels1and2.Incontrast,Model3thatfurther
controlsforhumancapitalvariableshasvaluesofRNIandIFIcloseto1,valueslessthan0.05ofRMSEA,and
largenegativevaluesofBIC,allindicatinggoodmodelfit.Thus,thefitstatisticsfromtheSEMresultssupportthe
choiceofModel3overModels1or2whetherweusetheREMorFEMversions.
Asexplainedpreviously,whenwedonotincludeanyobservedtimeinvariantvariables,theREMisarestricted
formoftheFEMwhereintheformer,thelatenttimeinvariantvariables(i)areuncorrelatedwithallother
covariates.CorrelationsareallowedintheFEM.Giventhisnesting,wecanformaLRchisquaredifferencetestto
comparetheFEMandREMbysubtractingTmteststatisticsfortheREMversusFEM,takingadifferenceintheir
respectivedegreesoffreedom,andcomparingtheresultstoachisquaredistribution.AstatisticallysignificantLR
chisquareisevidencethatfavorstheFEMwhileaninsignificantchisquarefavorstheREM.PerformingtheseLR
chisquaredifferencetestsconsistentlyleadstoastatisticallysignificantresultlendingsupporttotheFEMversions
ofModels1,2,and3inTable3.TheseresultsareconsistentwiththeHausmantestinfavoringtheFEM.
However,thelargesamplesizecombinedwiththelargedegreesoffreedomforthesemodelscomplicatestheresult
inthatthestatisticalpowerofallthesetestsishighanddoesnottellusthemagnitudeofthedifferences.TheRNI
andIFI(i.e.thebaselinefitindices)differinthethirddecimalplaceandvaluesascloseasthesearegenerally
treatedasessentiallyequivalent.TheRMSEAhasslightlylargerdifferencesinthepairwisecomparisonswitha
tendencytofavortheREM.ThegreatestseparationinthepairwisecomparisonsforModels1,2,and3occurfor
theBICandtheBICfavorstheREMversionsofthemodels.
TheseresultsareinterestinginthattheyimplythattheREMandFEMarecloserinfitthantheHausmantestorthe
LRchisquaretestssuggest.OnereasonisthattheREMhasconsiderablymoredegreesoffreedomthantheFEM
sincetheREMisforcingtozeroallofthecovariancesofthelatenttimeinvariantvariablewiththetimevarying
observedcovariates.TheBICgivesconsiderableweighttothedegreesoffreedomofthemodelinlargesamples
andthegreaterdegreesoffreedomcontributestomakingtheBICmorefavorabletowardstheREM.Asecond
relatedreasonfortheREMappearingmorecompetitiveisthatthemagnitudesoftheestimatedcovariances
betweenthetimevaryingcovariatesandthelatentvariablearenotalwayslargeintheFEM.Table4providesa
sampleoftheestimatedcovariancesbetweenthefullsetoftimevaryingcovariatesandiintheFEMversionof
Model3.Weprovideonlythreeyearsofcovariancesandcorrelationsforsimplicity,butnotethatweactually
estimateallsixyearsofcovariances.Theseresultsshowthatmanyofthecovariancesofthelatenttimeinvariant
variable(i)andthetimevaryingxsarenotstatisticallysignificantlydifferentfromzeroeventhoughthe
significancetestsarebasedonanNgreaterthan5,000.Interestingly,numberofchildren,thekeyexplanatory
variable,isessentiallyuncorrelatedwithiasismaritalstatus,parttimeseniority,andexperience.Theother
12/24
2/1/2015
statisticallysignificantcorrelationsareoftenmodestinmagnitude(e.g.,currentlyinschoolandparttimeexperience
correlateslessthan0.01).Thusourresultssuggestamorenuancedpictureoftheassociationbetweeniandthexs
thansuggestedbytheREMorFEM.Thelatenttimeinvariantvariablehasastatisticallysignificantassociation
14
withsomexs,butnotwithothers.Eventhestatisticallysignificantonesaremodestinmagnitude(e.g.,0.2). So
themodestandsometimesnotstatisticallysignificantcovariancesofiandthexsseemtobethereasonthatthe
REMandFEMhavefitsthataresocloseasgaugedbyourfitindices.Thelowcorrelationofiwithourfocal
independentvariable,numberofchildren,likelyexplainswhythecoefficientsforthisvariabledonotdiffereven
morebetweentheREMandFEM.
Table4
SubsetofCovariancesandCorrelationsBetweenTimeVaryingandLatent
TimeInvariantVariables,FixedEffectsModel3
Aswenotedabove,thesefitindicesandtheestimatesofthecovariancesofthelatenttimeinvariantvariablesand
theobservedtimevaryingcovariatesarenotavailablewithmostrandomandfixedeffectsstatisticalroutinesthe
Hausmantestindicated,asisoftenthecase,thattheFEMareunambiguouslysuperiortotheREM.Ourresults
presentamoresubtleviewoftheirrelativefit.
TheresultsaboveshowthatModel3sfitissuperiortoModels1and2.WhileModel3fitsthedatafairlywell,the
LRchisquaretestsuggeststhepotentialforimprovementinfit.OnepossibilityistoestimateaFEM/REMhybrid
model.InthefinalcolumnofTable3,wepresentresultsfromthehybridmodel,wherethelatenttimeinvariant
variable(i)iscorrelatedonlywiththeconsistentlysignificantcovariances,i.e.educationalattainment,currentlyin
school,fulltimeexperience,andemploymentbreaks,andisuncorrelatedwiththeremainingcovariates.Whenwe
comparetheFEM/REMhybridmodeltotheREMandFEM,wefindthatthechisquaredifferencetestssupport
theFEM.However,thedifferencesintheIFI,RNI,andRMSEAaresmall.Finally,theBICsupportstheREM.If
aresearcherjudgesthecorrelationsbetweenthetimevaryingcovariatesandthelatenttimeinvariantvariabletobe
small,thenitseemsreasonablethatBICsupportstheREM.Thecoefficientestimatefornumberofchildren
increasesinabsolutemagnitudefrom0.034to0.043aswemovefromtheREMtotheFEM/REMhybridand
FEM.Asagreaterthan25%increasethisisnoteworthy,thoughsubstantivelythechangemightnotappear
significant.
GeneralPanelModelandRestrictiveForms
Goto:
Aswediscussedinsection2,wecanestimateageneralpanelmodelthatenablesustoconsiderindividual
heterogeneity(latenttimeinvariantvariables)asintheusualFEMandREM,butalsopermitstimediffering
coefficientsandadditionalstructuresforcomparison.Inthesemodels,wecanalsoincludetimeinvariantobserved
variables,andthusweincludeindicatorsforraceinthesemodels(withoneindicatorforblack,oneforHispanic,
andwheretheomittedcategoryisnonblack,nonHispanic).Thisadditionprovidesestimatesforthetimeinvariant
variables,usefuladditionalinformationinmanyapplications.Aswedonothavepriorknowledgeastoasingle,
specificmodel,weadoptthestrategyoffittingmodelsoutlinedinTable1.Table5containsthefitstatisticsforthe
modelsweestimate,beginningwiththegeneralpanelmodelandfollowedbythemorerestrictiveformsas
describedinTable1.
Table5
Model3(MaritalStatusandHumanCapitalVariablesasControls)Fit
Statistics(N=5285)
AsweseefromTable5,thegeneralpanelmodelfitsquitewell.Constrainingthelatenttimeinvarianteffecttobe
invariantovertimesignificantlyreducesmodelfitfromthegeneralpanelmodel,andindeedinallthespecifications
13/24
2/1/2015
thatfollowwefindthatallowingthiseffecttovaryovertimeisconsequentialtothefitofthemodel.Substantively,
thisimpliesthatthelatenttimeinvariantfactors,suchasstablepersonalitytraits,impactwagesdifferentlyovera
womanslifecourse.Conversely,constrainingtheeffectofracetobeconstantovertimeimprovesmodelfit,aswe
seefromspecification2b.
Figures4plotstheeffectsofnumberofchildrenonlogwagesforseveralalternativespecifications,including
specification2b.Thexaxisindicatesyearandtheyaxisindicatesthechildeffectonwomenswages.Theyaxisis
inreverseordersuchthathighervaluesindicatealargerwagepenaltyformotherhood.
Figure4
SEMCoefficientsfortheEffectofTotalNumberofChildrenonWomens
LogHourlyWage:Model3,MaritalStatusandHumanCapitalVariables
Specification2ballowsthetimevaryingcoefficientstovaryovertime,andweobserveagenerallyincreasing
effectofnumberofchildrenovertime.Thisresultmakessubstantivesense,suggestingaformofcumulative
disadvantageassociatedwithmotherhoodonwomenswages.
Constrainingallthetimevaryingvariablestobeconstantovertime(specification3)doesnotsignificantlychange
thefitindices.Ifwehadspecifichypothesesconcerningwhichvariablesarethemostlikelytovaryovertime,then
wecouldestimatethemodelfreeingonlythosecoefficientsandcomparethefitofthisnewmodeltothefixedand
randomeffectsversionsofthesamemodelwherethecoefficientsofthesamevariablearesetequalovertime.In
ourcase,wedonothavespecifichypothesesonwhichvariablescoefficientsmightdifferovertime.Therefore,we
constrainallthecoefficientsofthetimevaryingvariablestobefixedovertime.TheIFI,RNI,andRMSEA
suggestonlyslightdifferencesbetweenmodelsthatdoanddonotallowthecoefficientstovaryovertime.We
reporttheresultsforspecification3binTable6.
Table6
SEMCoefficientsfortheEffectsofTotalNumberofChildrenandControls
onWomensLogHourlyWages:NLSY1983,1985,1987,1989,1991,
1993
Ourspecificationsthatsetthecovariancebetweenthetimevaryingvariablesandthelatenttimeinvariantvariables
tozeroalsoimprovemodelfit,andwereporttheresultsfromspecification4binTable6.Thisisagainnot
surprising,asmostofthecovariancesofthelatenttimeinvariantvariablewiththeobservedcovariatesare
substantivelynearzero.Theeffectofnumberofchildrenonwagesforspecification4bisthesmallestofthosewe
haveestimated,0.028.Giventhehighlevelofmodelfitforspecification4b,wetrysomeslightmodificationsat
thispoint,allowingjustthechildcoefficienttovaryovertime(4b*)andconstrainingsomeofthecovariancesofthe
observedtimevaryingandlatenttimeinvariantvariablestobezero(4b**).Thefitiscomparablebetween4band
4b*/4b**,exceptaccordingtoBICwhichfavors4b.Wereporttheresultsofthechildcoefficientsfor4b*in
Figure4,whereweagainseeagenerallyincreasingnegativeeffectofnumberofchildrenovertimesuggestinga
formofcumulativedisadvantage.Wenextallowtheerrorvariancestovaryovertime(specification5).Thechi
squaredifferencetestsarestatisticallysignificantsupportingthemodelswheretheerrorvariancesareallowedto
differ,whiletheIFI,RNI,andRMSEAsuggestonlyslightdifferencesbetweenmodelsthatdoanddonotallow
theerrorvariancestovaryovertime.TheBICcomparisonssupporttheconclusionthatwepreferthemodelsthat
donotallowthecoefficientsanderrorvariancestochangeovertime.Ifwecontinuetofollowourseriesof
specificationsoutlinedinTable1,wenextestimatetheclassicREM(specification6)andFEM(specification7).
Thefitindicesdonotsupporttheseaspreferredmodels.Theweightofevidencetendstofavorthemodelswitha
latenttimeinvariantvariablewhoseeffectsvaryovertime,observedtimeinvariantandtimevaryingeffectsthatare
14/24
2/1/2015
constrainedtobeequalovertime(althoughperhapsthechildcoefficientisbestlefttovaryovertime),anderror
variancesthatareconstrainedtobeequalovertime.Thisalternativespecificationleadstosomeinteresting
substantiveresults,aswenoteabove.
GeneralPanelModelandRestrictiveFormswithLaggedEffects
Goto:
Onepossibilitytofurtherimproveourmodelsishavingthelaggedvalueofwagesasadeterminantofcurrent
wages.Substantively,includingsuchaneffectmakessenseinthatthereisinertiainwageswherelastyearswages
arelikelytobeagoodpredictorofthisyears.Thoughraisestypicallyoccur,thereisahighdegreeofstabilityin
relativewagesacrossindividualsfromyeartoyear.Aswedescribedinsection2.4,laggedendogenousvariables
forautoregressiveeffectsarealsostraightforwardtoinclude.Ourappendixprovidesamoreformalpresentationof
theSEMsetupandassumptionsforestimatingsuchamodel.Weloseonewaveofdataforeachlagbyspecifying
suchamodelthus,ourhypothesizedmodelswillbecomparedtodifferentsaturatedandbaselinemodelsthanthose
above.Table5providesfitstatisticsforthegeneralpanelmodelandrestrictiveformswithalaggedendogenous
variable.WeplotthevaluesforthespecificationswherethechildcoefficientisfreedinFigure4andreportresults
fromsomeofthebetterfittingspecificationsinTable6.
TheoverallfitstatisticsofthemodelinTable5enableustocomparethemodels.Thelargesamplesizeand
accompanyinghighstatisticalpowerleadalltheLRchisquareteststobestatisticallysignificant.Wepresentfewer
resultsthanthoseabove,generallyomittingthosespecificationssequentiallythatdonotimprovemodelfit.Wefind
onceagainthattheequalityconstraintonthecoefficientsforthelatenttimeinvariantvariableisnotsupported.The
RNIandIFIareconsistentlycloseto1.00andtheRMSEAisconsiderablylowerthantheusualcutoffof0.05.The
BICalwaystakeslargenegativevaluessupportingtheselectionofanyofthesemodelsoverthesaturatedmodel.
Specification2bhasparticularlygoodfitaccordingtoIFI,RNI,andRMSEA,andwereportthetimevaryingchild
coefficientofthisspecificationinFigure4.Thechildcoefficientsarequitesimilartothoseinspecification4b*
above.Specification3b,whichdiffersfrom2binthatweconstraintheobservedtimevaryingeffectstobeconstant
overtimeisanimprovedfitaccordingtoBIC,butnotaccordingtotheIFI,RNI,orRMSEA.AccordingtoBIC,
thebestfittingspecificationis5b2,andwereporttheresultsforthismodelinTable6.Thecoefficientsarequite
similartospecification3b,andtotheclassicREM.Wetestafewalternativespecificationsto5b2(5b*and5b**),
andthefitisquitecomparable.Wereportthetimevaryingchildcoefficientfromspecification5b*,whichis
relativelyflatterthantheotherspecifications.
Takentogetherwereachthefollowingconclusionsonoverallfitofthemodels.First,wesignificantlyimprove
modelfitwhenthecoefficientonthelatenttimeinvariantvariableisallowedtovaryovertime.Allowingthe
coefficientsofthelatenttimeinvariantvariabletovaryisnotanoptionintheusualFEMandREMthataretypical
insociology.Ourresultsprovidestrongevidencethattheseeffectsdovarywithtimeinthiscase.Second,theIFI,
RNI,andRMSEAdonotreveallargedifferencesamongthedifferentversionsofthesemodels,buttendtofavora
lessrestrictivemodel,whereonlyobservedtimevaryingeffectsareallowedtovaryovertime.Third,thelagged
15
endogenousvariablemodelshaveverygoodfit. Thesegeneralpanelmodelspecificationsandmorerestrictive
formssuggestasmallerwagepenaltyformotherhoodthantheclassicREMandFEM,andprovidesomeadditional
substantiveinformation.Moreover,modelswithlaggedeffectslikewisesuggestasmallerpenaltyformotherhoods
directeffect,particularlyinlateryears,thanthatsuggestedbyREMandFEMwithoutlaggedendogenous
variables.However,giventhelaggedendogenousvariablethereareadditionallaggedeffectsofmotherhoodon
wages.Forinstance,thenumberofchildreninsay,1983,hasadirecteffectonwagesin1983,butitalsohasan
indirecteffectonwagesin1985giventheimpactof1983wageson1985wages.Thustheeffectofnumberof
childreninoneperiodextendsbeyondthatperiodthroughitsindirecteffectonwagesthroughthelagged
dependentvariable.Thesameistruefortheothercovariateswithsignificanteffectsonwages.Theireffectsarenot
onlydirect,butindirect.Thisusefuldistinctionbetweendirect,indirect,andtotaleffectsiswellknownintheSEM
literature(e.g.,Sobel1982Bollen1987)andmostSEMsoftwarepermitsitsexploration.
15/24
2/1/2015
SEMmodelshavehelpedustouncoverevidencethatthestandardassumptionsoffixedcoefficients,fixederror
variances,andnolaggedendogenousvariableswerenotalwayssupportedwhentestedinourempiricalexample.
Wepresentthisseriesofspecificationstodemonstratetheflexibilityofourapproach.Still,wecouldhaveestimated
variousotheralternatives,orcombinedmanyoftheelementswepresentseparately.TheSEMformulationalso
allowsinvestigationofindirecteffects,aswementionedabove.Anotherrealmthatwehavenotexplored,but
whichiseasilyimplemented,istoincludelatentcovariateswithmultipleindicators.
Conclusion
Goto:
REMandFEMpanelmodelapplicationsarebecomingmorecommoninSocialForcesandthroughout
sociologicalresearch.However,toooftenresearchersapplyFEMorREMwithoutcarefulconsiderationastowhy
theyshouldpreferonemodeloveranother.Inthispaper,weshowthatthesemodelsarearestrictiveformofamore
generalpanelmodelthatpermitsawiderrangeofalternativesandthatisestimableusingwidelyavailableSEM
software.Withthisgeneralpanelmodel,aresearcherdoesnotneedtomaintaintheseconstraintsbutcantestthem
andonlyimposethosesupportedbythedata.Inaddition,awidevarietyofadditionalmodelsandformulationsare
possible.Forinstance,aresearchercantestwhetheracovariatesimpactontherepeatedmeasurestaysthesame
acrossallwavesofdatatestwhethertheerrorvariancesshouldbeallowedtovaryovertimeincludelagged
covariatesorlaggeddependentvariablesfreefactorloadingsonthelatenttimeinvariantvariableincludeobserved
timeinvariantvariablesinaFEMeitherasuncorrelatedwiththelatenttimeinvariantvariableorasadeterminantof
thelatentvariableestimatethemagnitudeofthecovarianceofthelatenttimeinvariantvariableswiththeobserved
timevaryingcovariates,andestimateahybridFEM/REMmodelwiththeinformationgleanedastothemagnitudes
ofthesecovariances.Fortheseadditionalformulations,wehaveusefultestsofmodelfitandfitindicesthatarenot
partofthestandardREMandFEManalysis.WealsohavealikelihoodratiotestoftheFEMandREMtoahybrid
modelandavarietyoffitindicesassupplementstotheHausmanTest.Indeeditwouldbeinterestingtoknowhow
manyoftheFEMandREMthathaveappearedintheliteraturewouldhaveadequatemodelfitifsomeofthese
toolswereapplied.
Ourempiricalexampleoftheimpactofthenumberofchildrenonwomenswagesillustratedsomeofthe
advantagesthatflowbycastingFEMandREMpanelmodelsaspartofthisgeneralpanelmodel.Foronething,we
hadaccesstoamorecompletesetofmodelfitstatisticsthatrevealedflawsinboththestandardFEMandREMthat
werenotevidentintheusualapproachesandthepublicationbasedonthem.Specifically,neithermodelfully
reproducedthecovariancematrixandmeansoftheobservedvariablesastheyshouldifthemodelswerecorrect.
Furthermore,wefoundevidencethattheREMweremorecompetitivethantheHausmantestandlikelihoodratio
(LR)testalonerevealed.Infact,theHausmanandLRtestsfromthestudyuponwhichourexamplewasbased
unambiguouslysupportedtheFEMovertheREM,asitgenerallydoes.TheprimarydistinctionbetweentheFEM
andREMiswhetherthecovariatescorrelatewiththelatenttimeinvariantvariable.UsingtheSEMapproachwe
sawthatmanyofthecorrelationsofthecovariateswiththelatenttimeinvariantvariablewereclosetozero
informationunavailablewithusualmethods,andthuswefitaFEM/REMhybridmodelinwhichonlyasubsetof
thecovariateswerecorrelatedwiththelatenttimeinvariantvariable.Furthermore,theSEMapproachsuggested
thattheimpactofthelatenttimeinvariantvariableonwageswasnotthesameacrossallyearsandthatthe
unexplainedvarianceswerenotconstantovertimeinallmodels.MostapplicationsofFEMandREMassume
constanteffectsregardlessoftheyearofthepaneldata.Afurtherdeparturefromthepublishedmodelsforthese
datawasthatwelookedatwhetherlaggedwagesimpactedcurrentwagesnetoftheotherdeterminants.Giventhe
degreetowhichcurrentsalaryiscloselytiedtopastsalary,thisisasubstantivelyplausibleeffectanditwaseasyto
explorewithourmodel.Wefoundstrongevidencethatthelaggedendogenousvariablemodelsweresuperiorto
themodelswithoutthem.Arelatedsubstantivepointisthatthesemodelsshowtheimportanceofpriorwageson
currentwagesandthisimpliesthatanyvariablesthatimpactwagesinagivenyearhaveanindirecteffectonlater
yearsaswell.Thus,thenumberofchildrenhasdirectaswellasindirecteffectsonmotherswages.Wealso
incorporatedanobservedtimeinvariantvariable,race,totheFEM,providingthetypicallyunavailablecoefficients
16/24
2/1/2015
ofapotentialvariableofinterest.
Stilltheempiricalexampledidnotexhaustthetypesofmodelsforpaneldatathatcouldbeappliedwithour
approach.Forinstance,itwouldbestraightforwardtodevelopamodelthatpermitsthedependentvariabletobe
latentwithseveralindicatorsandtohaveafixedorrandomeffectslikemodelforit.Wecouldallowfor
measurementerrorinthetimevaryingortimeinvariantcovariatesandincludetheminthemodel.Inaddition,latent
curvemodelsorAutoregressiveLatentTrajectory(ALT)modelsmightbeapplied(BollenandCurran,2006).In
brief,researcherscanbuildabroaderrangeofmodelsthaniscommonlyapplied,someofwhichmightbetter
capturethetheorythattheywishtotest.
AlthoughtheSEMapproachoffersconsiderableflexibility,itdoesnotadequatelyhandleallsituationsthat
researchersmightencounter.Forinstance,ifthelatenttimeinvariantvariablehasadifferentcorrelationwiththe
covariatesfordifferentindividuals,thesemodelswillnotwork.Ejrnaes&Holm(2006)showhowadifference
modelorcasemeandeviation(fixedeffects)modelwouldworkinthissituationwhereourSEMapproachwould
notunlessdifferencescoresweremodeled.TheyalsosuggestaHausman(1978)testthatcouldtestforthis
possibilityfortheFEM.Similarly,themodelswetreatpermitthecovariateseffectontherepeatedmeasureto
differovertime,butassumethatthesecoefficientsareconstantoverindividuals.Itispossibletoestimatemodels
wherethesecoefficientsdifferoverindividuals(e.g.,Beck&Katz,2007).Alsotherearesomeinherentlynonlinear
relationshipsbetweenvariablesthatmightbedifficultorimpossibletocapturewiththeclassicFEMandREMor
withSEM.Finally,modelswithnumerousparameters,agreatdealofmissingdata,andmanywavesmightexceed
thecomputationalcapabilitiesofsomedesktopsorSEMsoftware.Nevertheless,ourpaperallowsconsiderable
flexibilityinthevariantsoftheFEMandREMthatresearcherscanapplytopaneldata.ByprovidingthisSEM
framework,researcherswillbeabletotestarichervarietyoftheoreticalmodelsandexploreflexiblealternative
modelsthatcouldhelptestandshapenewtheories.
Acknowledgments
Goto:
KennethBollengratefullyacknowledgesthesupportoffromNSFSES0617276fromNIDA1RO1DA13148
01&DA01314805A2.EarlierversionsofthispaperwerepresentedattheCarolinaPopulationCenteratthe
UniversityofNorthCarolinaatChapelHill,theMethodsofAnalysisPrograminSocialSciences(MAPSS)
ColloquiumatStanfordUniversity,theSocialScienceResearchInstituteatDukeUniversity,the2007North
CarolinaChapteroftheAmericanStatisticalAssociationconferenceattheUniversityofNorthCarolina,
Greensboro,andtheCaliforniaCenterforPopulationResearchattheUniversityofCaliforniaLosAngeles.We
thankGuangGuo,FrancoisNielsen,andtheanonymousreviewersforhelpfulcommentsandShawnBauldryfor
researchassistance.
Appendix
Goto:
FixedandRandomEffectsModelsasStructuralEquationModels
ClassicFixedandRandomEffectsModels WerepresentthestandardFEMandREMinthefollowingmatrixequation:
= + w i + i
where
17/24
2/1/2015
1
2
y
y
i2
w
i
iT
By
x1
i1
i2
=
i
iT
x
iT
zi
x i2
i1
x i1
By
x2
By
By
By
By
x3
By
xT
By
Thexitvectorcontainsthevaluesofthetimevaryingcovariatesfortheithcaseatthetthtime,ziisthevectorof
observedtimeinvariantvariablesfortheithcase,andiisthelatenttimeinvariantvariablefortheithcase.We
assumethatthemeanofthedisturbanceiszero[E(i)=0foralli],thattheyarenotautorcorrelatedovercases[
COV(i , ) = 0 forij],andthatthecovarianceofthedisturbancewiththecovariatesinw iis

j
zero [COV(w i , ) = 0 for all i, j]

j
.InSEMsthevectorofmeans()andthecovariancematrix()ofthe
observedvariablesarefunctionsoftheparametersoftheresearchersmodel.Ifweplaceallmodelparameters
(coefficients,intercepts,variances,covariances)inavector,thentheseimpliedfunctionsarethemodelimplied
covariancematrix(())andimpliedmeanvector[()].Whenthemodelisvalid,then
H o : = ()& = ()
Thatis,wewillexactlyreproducethemeansandcovariancematrixoftheobservedvariablesbyknowingthe
modelparametervaluesandsubstitutingthemintotheimpliedmeanvectorandimpliedcovariancematrix.For
equation(A1),theimpliedmeanvector[()]is
() = [
andtheimpliedcovariancematrix[()]is
() = [
ww
ww
ww
ww
wherewwisthecovariancematrixofthecovariatesinwandisthecovariancematrixofthedisturbances().
IntheusualFEM,wewoulddropzifromwiandthecorrespondingcoefficientsfrom,setBy1x1=By2x2==
18/24
2/1/2015
ByTxT,andmakeadiagonalmatrixwithallelementsofthemaindiagonalequal.Thewwcovariancematrix
allowsallcovariatestocorrelate,includingthelatenttimeinvariantvariable.FortheusualREM,wecanreturnzi
towi,butnowwemustconstrainwwsothatallcovariancesofwithxtandzarezeroandwemaintainthe
equalityconstraintsonthecoefficientssothatBy1x1=By2x2==ByTxTandBy1z=By2z=ByTz.Asexplainedin
thetext,wecaneasilytesttheserestrictionsinSEMs.
TheMaximumLikelihoodEstimator(MLE)isthemostwidelyusedestimatorinSEMsoftware.Thefitting
functionthatincorporatestheMLEis
FM L = ln () ln S + tr[
())
()S] p + (z
())
()(z
whereSisthesamplecovariancematrix, isthevectorofthesamplemeansoftheobservedvariables,pisthe
numberofobservedvariables,lnisthenaturallog,||isthedeterminant,andtristhetraceofamatrix.TheMLE
estimator, ,ischosensoastominimizeFML.LikeallMLEs, ,hasseveraldesirableproperties.Itisconsistent,
asymptoticallyunbiased,asymptoticallyefficient,asymptoticallynormallydistributed,andtheasymptotic
covariancematrixof istheinverseoftheexpectedinformationmatrix.
TheMLEestimatorasimplementedinFMLleadstoaconsistentestimatorofallintercepts,means,coefficients,
variances,andcovariancesinthemodelunderabroadrangeofconditions.Thismeansthatinlargersamples,the
estimatorwillconvergeonthetrueparametersforvalidmodels.However,ifwewishtodevelopappropriate
significancetests,thenweneedtomakeassumptionsaboutthedistributionsoftheobservedvariables.Theusual
assumptionisthattheobservedvariablescomefromamultivariatenormaldistribution.Aslightlylessrestrictive
distributionalassumptionthatmaintainsthepropertiesoftheMLEanditssignificancetestsisthattheobserved
variablescomefromamultivariatedistributionwithnoexcessmultivariatekurtosis(Browne1984).Multivariate
skewnessispermittedaslongasthemultivariatekurtosisdoesnotdifferfromthatofanormaldistribution.
Fortunately,evenwhenthereisexcessmultivariatekurtosisthereareavarietyofalternativewaystoobtain
asymptoticallyaccuratesignficancetestsincludingbootstrappingtechniques(e.g.,BollenandStine1990e.g.,
BollenandStine1992),correctedstandarderrorsandchisquares(e.g.,SatorraandBentler,1994),orarbitrary
distributionestimators(e.g.,Browne1984).SeeBollenandCurran(2006:5557)forfurtherdiscussionand
references.Theseoptionsprovideabroaderrangeofchoicesthanistrueintheusualimplementationofthe
standardFEMandREM.
DynamicFixedandRandomEffectsModels Intheeconometricliterature,dynamicmodelsreferstotheFEMand
REMwithlaggeddependentvariablesincludedamongthecovariates.Intheusualimplementations,thelagged
dependentvariablemodelcreatesconsiderabledifficultiesandisthesourceofmuchdiscussion(see,e.g.,Hsiao
2003,Ch.4).Fortunately,thesemodelsarerelativelystraightforwardintheSEMapproach.Amodificationof
equation(A1)permitslaggedendogenousvariables,
= + Ry
+ w i + i
wherebecauseofusingalaggeddependentvariableweneedtoredefinevectorstotakeaccountoftreatingthefirst
timewavevariable,yi1,aspredeterminedandincludedamongtheothercovariatesandthepresenceoflaggedy
influences,sothat
19/24
2/1/2015
yi1
x i2
i2
w
i
x
iT
zi
iT
By
21
i2
iT
x2
By
By
By
R =
32
x3
By
43
xT
By
T ,T 1
Inthismodel,yi1ispredeterminedanduncorrelatedwithiasaretheothercovariates.However,thereisa
correlationbetweenyi2yiTandatleastsomeelementsofi(e.g.,yi2correlateswithi2)soweneedtoconsider
allbutthefirstwave(yi1)asendogenous.
Forthismodel,theimpliedmeanandcovariancematricesbecome,
(I R)
() = [
( +
andtheimpliedcovariancematrix[()]is
(I R)
() = [
ww
(I R)
](I R)
ww
ww
(I R)
ww
Fortunately,wecancontinuetousetheMLfittingfunctioninequation(Fml)andtheresultingestimatormaintains
thepropertiesofanMLEundertheprecedinglydescribeddistributionalassumptionsandthecorrectedteststatistics
20/24
2/1/2015
arealsoavailablewhenneeded(seeabove).Autoregressiverelationsamongtheidisturbancescombinedwiththe
autoregressionoftheyiswouldcomplicatethesituation,butarenotdiscussedhere.
Footnotes
Goto:
1
Aswementionbelow,therearemethodsofhandlingtimespecificcoefficientsforthetimevaryingcovariates,butthisissueis
seldomexaminedinpractice.
2
OtherSEMapproachesusespecialcasesofthismodel.Teachman,Duncan,Yeung,andLevy(2001)andEjrnaes&Holm
(2006)focusonthefixedeffectsmodelofyit =Byxxit +i+it .AnunpublishedpaperbyAllisonandBollen(1997)presenta
modelequivalenttowhatwecalltheREM/FEMHybridModelofyit =Byxxit +Byzzi+i+it whereicancorrelatewithxit
aslongaszidoesnot.Allisons(2005)SASbookonfixedeffectsmodelsalsoincludestheAllisonandBollen(1997)Hybrid
REM/FEM.Nopapersofwhichweareawareintroducethefullgeneralpanelmodelthatwehavehere.
3
Thoughweusethetermindividualtorefertoacase,thecasesdonothavetobeindividualpeople.Theycouldbegroups,
organizations,nations,etc.
4
Attemptingtoestimatethiscorrelationwouldleadtoperfectcollinearitybetweenziandi.Thiswouldmakeitimpossibleto
estimatetheeffectsofthesevariables.
5
Apossiblesourceofconfusionisthatpathanalysisissometimesusedtoreferjusttorecursiveornonrecursivemodelsofonly
observedvariableswheremeasurementerrorandlatentvariablesarenotconsidered.Thisisaninaccuraterestrictiononthe
usageoftheterm.Infact,SewallWright,theinventorofpathanalysis,includedlatentvariablesaspartofpathanalysis.
6
AreviewerpointsoutthataclassicapproachviewstheFEMasawithinunitestimatorandviewstheREMasaweighted
averageofthewithinandbetweenunitmodel.Aswedemonstratelaterwithourempiricalexample,ifweusetheMLestimator
wewillgetthesameestimateswhetherobtainedviaaclassicFEMandREMprocedureinStataorusingSEMsoftware.This
suggeststhattheclassicinterpretationsholdregardlessofsoftwareused.However,aswedepartfromtheseclassicFEMand
REM,thisnolongerwillbetrue.
7
MLEsareconsistent,asymptoticallyunbiased,asymptoticallynormallydistributed,asymptoticallyefficientamong
asymptoticallyunbiasedestimators,andtheinverseoftheexpectedinformationmatrixisavailabletoestimatetheasymptotic
covariancematrixoftheparameterestimatorthatweuseforsignificancetesting.
8
ArevieweraskedwhetherestimationwithSEMrequiresanyadditionalassumptionsbeyondtheonesinclassicFEMand
REM.AvarietyofestimatorsarepossiblewiththeclassicFEMandREM.However,giventhevarietyofestimatorsandthe
generalityofthemodelswepresent,theassumptionsarelessrestrictivethantheclassicFEMandREM.Exceptionstothisare
discussedintheconclusions.
9
Allison(2005:129)suggeststhattheSEMapproachrequireslistwisedeletion,thoughgiventhecontextofhiscommentsthey
probablyrefertoProcCalisinSAS.However,directMLEormultipleimputationarebothoptionswhenusingmostotherSEM
softwareforpaneldata.
10
Thesecutoffsaremeantasroughguidelines.Therearecircumstanceswheredifferentcutoffsmightmakesense.Nestedand
sometimesnonnestedmodelsarecomparedwiththesefitindices.
11
BudigandEnglands(2001)analysisresultedinafinalsampleof5,287women.
12
BudigandEnglandalsoexaminedthewagepenaltywiththreedichotomousmeasuresindicatingonechild,twochildren,and
threeormorechildren.Theyfindthattheeffectsaremonotonic,althoughnotperfectlylinear,andpreferthecontinuous
indicatorofnumberofchildrenforallotheranalyses.
13
WethankMichelleBudigforsharingwithustheexperienceandseniorityvariablesfromtheBudigandEngland(2001)
analysis.
14
AresearchercouldalsouseBICtestsonthesecovariancesratherthanconventionalstatisticalsignificancetests.These
wouldtendtobemoreconservativeinfindingnoteworthycovariances.Boththisapproachandtheonewetakedonottake
accountofthemultipletestsofsignificanceperformedwhenexaminingtheseindividualparametersoneatatime.Forthis
reason,thesimultaneoustestsofoverallmodelfitreportedinTable3aremoreusefulinthattheypermitcomparisonsofa
modelwhereallcovariancesarezeroversusnot.
15
ThisstatementrecognizestherolethatthelargesamplesizeplaysinelevatingstatisticalpowerfortheLRchisquaretests
andhencedownplaysthestatisticalsignificanceofthesetests.However,thechisquaretestsmeanthatthereisstillroomfor
improvementdespitethefavorableresultswithallotherfitindicesforthesemodels.
21/24
2/1/2015
ContributorInformation
Goto:
KennethA.Bollen,H.W.OdumInstituteforResearchinSocialScience,DepartmentofSociology&Statistics,
UniversityofNorthCarolina,ChapelHill.
JennieE.Brand,DepartmentofSociology,CaliforniaCenterforPopulationResearch,UniversityofCalifornia,
LosAngeles.
References
Goto:
1. AldersonArthurS.ExplainingDeindustrialization:Globalization,Failure,orSuccess?American
SociologicalReview.199964:701721.
2. AldersonArthurS,NielsenFrancois.IncomeInequality,Development,andDependence:A
Reconsideration.AmericanSociologicalReview.199964:606631.
3. AllisonPaulD.FixedEffectsRegressionMethodsforLongitudinalDataUsingSAS.Cary,NC:SAS
Institute2005.
4. AllisonPaulD.UsingPanelDatatoEstimatetheEffectsofEvents.SociologicalMethodsandResearch.
199423:179199.
5. AllisonPaulD,BollenKennethA.ChangeScore,FixedEffectsandRandomComponentModels:A
StructuralEquationApproach.PaperpresentedattheAnnualMeetingsoftheAmericanSociological
Association.1997.
6. ArbuckleJamesL.FullInformationEstimationinthePresenceofIncompleteData.In:MarcoulidesGA,
SchumackerRE,editors.AdvancedStructuralEquationModeling:IssuesandTechniques.Mahwah,NJ:
LawrenceErlbaumAssociates,Inc1996.pp.243277.
7. ArellanoManuel,BondStephen.SomeTestsofSpecificationforPanelData:MonteCarloEvidenceand
anApplicationtoEmploymentEquations.TheReviewofEconomicStudies.199158:277297.
8. ArellanoManuel,BoverOlympia.AnotherLookattheInstrumentalVariableEstimationofError
ComponentsModels.JournalofEconometrics.199568:2951.
9. BaltagiBadiH.EconometricAnalysisofPanelData.NY:Wiley2005.
10. BaltagiBadiH,RajB.ASurveyofRecentTheoreticalDevelopmentsintheEconometricsofPanelData.
EmpiricalEconomics.199217:8509.
11. BeckNathaniel.Timeseriescrosssectiondata:Whathavewelearnedinthepastfewyears?Annual
ReviewofPoliticalScience.20014:27193.
12. BeckNathaniel,KatzJonathanN.Whattodo(andnottodo)withTimeSeriesCrossSectionData.
AmericanPoliticalScienceReview.199589:634647.
13. BeckNathaniel,KatzJonathanN.RandomCoefficientModelsforTimeSeriesCrossSectionData:
MonteCarloExperiments.PoliticalAnalysis.200715:182195.
14. BeckfieldJason.EuropeanIntegrationandIncomeInequality.AmericanSociologicalReview.
200671:964985.
15. BentlerPeterM.ComparativeFitIndexesinStructuralModels.Psychometrika.1990107:23846.
[PubMed]
16. BollenKennethA.Total,Direct,andIndirectEffectsinStructuralEquationModels.Sociological
Methodology.198717:115140.
17. BollenKennethA.StructuralEquationswithLatentVariables.NY:Wiley1989.
18. BollenKennethA,CurranPatrickJ.LatentCurveModels:AStructuralEquationPerspective.NY:
Wiley2006.
19. BollenKennethA,LongJScott.,editors.TestingStructuralEquationModels.Newbury,CA:Sage
1993.
20. BollenKennethA,StineRobert.BootstrappingGoodnessoffitMeasuresinStructuralEquationModels.
22/24
2/1/2015
SociologicalMethodsandResearch.199221:205229.
21. BollenKennethA,StineRobert.DirectandIndirectEffects:ClassicalandBootstrapEstimatesof
Variability.SociologicalMethodology.199020:115140.
22. BrandJennieE.TheEffectsofJobDisplacementonJobQuality:FindingsfromtheWisconsin
LongitudinalStudy.ResearchinSocialStratificationandMobility.200624:275298.
23. BrowneMichaelW.AsymptoticallyDistributionFreeMethodsfortheAnalysisofCovarianceStructures.
BritishJournalofMathematicalandStatisticalPsychology.198437:6283.[PubMed]
24. BudigMichelleJ,EnglandPaula.TheWagePenaltyforMotherhood.AmericanSociologicalReview.
200166:204225.
25. ChamberlainG.PanelData.In:GrilichesZ,IntriligatorMD,editors.HandbookofEconometrics.II.
NorthHolland,Amsterdam:ElsevierScience1984.pp.12471320.
26. ConleyDalton,BennettNeilG.IsBiologyDestiny?BirthWeightandLifeChances.American
SociologicalReview.200065:3769.
27. ErjrnaesMette,HolmAnders.ComparingFixedEffectsandCovarianceStructureEstimatorsforPanel
Data.SociologicalMethodsandResearch.200635:6183.
28. GuoGuang,HippJohn.LongitudinalAnalysisforContinuousOutcomes:RandomEffectsModelsand
LatentTrajectoryModels.In:HardyM,BrymanA,editors.NewHandbookonDataAnalysis.London:
Sage2004.pp.347368.
29. HalabyCharlesN.PanelModelsinSociologicalResearch:TheoryintoPractice.AnnualReviewof
Sociology.200430:50744.
30. HausmanJerryA.SpecificationTestsinEconometrics.Econometrica.197846:12511272.
31. HausmanJerryA,TaylorWilliamE.PanelDataandUnobservableIndividualEffects.Econometrica.
198149:13771398.
32. HsiaoCheng.AnalysisofPanelData.2.Cambridge:CambridgeUniversityPress2003.
33. HuL,BentlerPM.FitIndicesinCovarianceStructureModeling:SensitivitytoUnderparameterized
ModelMisspecification.PsychologicalMethods.19983:42453.
34. JreskogKarlG.AGeneralMethodforEstimatingaLinearStructuralEquationSystem.In:Goldberger
AS,DuncanOD,editors.StructuralEquationModelsintheSocialSciences.NY:AcademicPress1973.
pp.85122.
35. KilbourneBarbaraStanek,EnglandPaula,FarkasGeorge,BeronKurt,WeirDorothea.ReturnstoSkill,
CompensatingDifferentials,andGenderBias:EffectsofOccupationalCharacteristicsontheWagesof
WhiteWomenandMen.AmericanJournalofSociology.1994100:689719.
36. LittleRoderickJA,RubinDonaldB.StatisticalAnalysiswithMissingData.NY:Wiley1987.
37. MatsuedaRossL,BielbyWilliamT.StatisticalPowerinCovarianceStructureModels.Sociological
Methodology.198616:120158.
38. MatsuedaRossL,KreagerDerekA,HuizingaDavid.DeterringDelinquents:ARationalChoiceModel
ofTheftandViolence.AmericanSociologicalReview.200671:95122.
39. McDonaldRoderickP,MarshHerbertW.ChoosingaMultivariateModel:NoncentralityandGoodness
ofFit.PsychologicalBulletin.1990107:247255.
40. MouwT,editor.AmericanSociologicalReview.Vol.65.2000.JobRelocationandtheRacialGapin
UnemploymentinDetroitandChicago,1980to1990pp.730753.
41. MundlakYair.OnthePoolingofTimeSeriesandCrossSectionData.Econometrica.197846:6985.
42. NielsenFrancois.TheFlemishMovementinBelgiumafterWorldWarII:ADynamicAnalysis.American
SocoiologicalReview.198045:7694.
43. NielsenFrancois,HannanMichaelT.TheExpansionofNationalEducationalSystems:Testsofa
PopulationEcologyModel.AmericanSociologicalReview.197742:479490.
44. RafteryAdrianE.BayesianModelSelectioninSocialResearch.SociologicalMethodology.
199525:11163.
23/24
2/1/2015
45. RafteryAdrianE.BayesianModelSelectioninStructuralEquationModels.In:BollenKA,LongJS,
editors.TestingStructuralEquationModels.Newbury,CA:Sage1993.pp.163180.
46. SatorraAlbert.RobustnessIssuesinStructuralEquationModeling:AReviewofRecentDevelopments.
QuantityandQuality.199024:367386.
47. SatorraAlbert,BentlerPeterM.CorrectionstoTestStatisticsandStandardErrorsinCovarianceStructure
Analysis.In:vonEyeA,CloggCC,editors.LatentVariablesAnalysis:ApplicationsforDevelopmental
Research.NewburyPark,CA:Sage1994.pp.399419.
48. SatorraAlbert,SarisWillem.PoweroftheLikelihoodRatioTestinCovarianceStructureAnalysis.
Psychometrika.198550:8390.
49. SchaferJosephL.AnalysisofIncompleteMultivariateData.BocaRaton,FL:Chapman&Hall/CRC
2000.
50. SchwarzGideon.EstimatingtheDimensionsofaModel.AnnalsofStatistics.19786:461464.
51. ShaumanKimberleeA,NoonanMaryC.FamilyMigrationandLaborForceOutcomes:SexDifferences
inOccupationalContext.SocialForces.200785:17351764.
52. SobelMichael.AsymptoticConfidenceIntervalsforIndirectEffectsinStructuralEquationModels.
SociologicalMethodology.198213:290312.
53. SobelMichael.SomeNewResultsonIndirectEffectsandtheirStandardErrorsinCovarianceStructure
Models.SociologicalMethodology.198616:159186.
54. SteigerJamesH,LindJohnC.StatisticallyBasedTestsfortheNumberofCommonFactors.Presentedat
thePsychometricSocietyIowaCity,IA.1980.
55. TeachmanJay.TheChildhoodLivingArrangementsofChildrenandtheCharacteristicsoftheir
Marriages.JournalofFamilyIssues.200425:86111.
56. TeachmanJay,DuncanGregJ,YeungWJean,LevyDan.CovarianceStructureModelsforFixedand
RandomEffects.SociologicalMethodsandResearch.200130:24270.
57. TuckerLedyardR,LewisCharles.AReliabilityCoefficientforMaximumLikelihoodFactorAnalysis.
Psychometrika.197338:110.
58. VanLaninghamJody,JohnsonDavidR,AmatoPaul.MaritalHappiness,MaritalDuration,andtheU
ShapedCurve:EvidencefromaFiveWavePanelStudy.SocialForces.200079:13131341.
59. WaldfogelJane.TheEffectofChildrenonWomensWages.AmericanSociologicalReview.
199762:209217.
60. WheatonBlair,ClarkePhillipa.SpaceMeetsTime:IntegratingTemporalandContextualInfluenceson
MentalHealthinEarlyAdulthood.AmericanSociologicalReview.200368:680706.
61. WilsonSvenE,ButlerDanielM.ALotMoretoDo:TheSensitivityofTimeSeriesCrossSection
AnalysestoSimpleAlternativeSpecifications.PoliticalAnalysis.200715:10123.
62. WooldridgeJeffreyM.EconometricAnalysisofCrossSectionandPanelData.Cambridge,MA:MIT
Press2002.
63. WothkeW.Longitudinalandmultigroupmodelingwithmissingdata.In:LittleTD,SchnabelKU,
BaumertJ,editors.Modelinglongitudinalandmultiplegroupdata:Practicalissues:Appliedapproaches
andspecificexamples.Mahwah,NJ:LawrenceErlbaum2000.pp.21940.
64. YakubovichValery.WeakTies,Information,andInfluence:HowWorkersFindJobsinaLocalRussian
LaborMarket.AmericanSociologicalReview.200570:408421.
24/24

A General Panel Model With Random and Fixed Effects - A Structural Equations Approach

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

A General Panel Model With Random and Fixed Effects - A Structural Equations Approach

Transféré par

Droits d'auteur :

Formats disponibles

2/1/2015

COV(i , ) = 0 forij],andthatthecovarianceofthedisturbancewiththecovariatesinw iis

zero [COV(w i , ) = 0 for all i, j]

Vous aimerez peut-être aussi