An empirical analysis of the importance of controlling for unobserved heterogeneity when estimating the income-mortality gradient

Adriaan Kalwij

Volume 31 - Article 30 | Pages 913–940

An empirical analysis of the importance of controlling for unobserved heterogeneity when estimating the income-mortality gradient

By Adriaan Kalwij

Date received:

17 Feb 2014

Date published:

17 Oct 2014

Word count:

3282

Keywords:

income, mortality, proportional hazards, unobserved heterogeneity

DOI:

10.4054/DemRes.2014.31.30

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Abstract

Background: Statistical theory predicts that failing to control for unobserved heterogeneity in a Gompertz mortality risk model attenuates the estimated income-mortality gradient toward zero.

Objective: I assess the empirical importance of controlling for unobserved heterogeneity in a Gompertz mortality risk model when estimating the income-mortality gradient. The analysis is carried out using individual-level administrative data from the Netherlands over the period 1996-2012.

Methods: I estimate a Gompertz mortality risk model in which unobserved heterogeneity has a gamma distribution and left-truncation of life durations is explicitly taken into account.

Results: I find that, despite a strong and significant presence of unobserved heterogeneity in both the male and female samples, failure to control for unobserved heterogeneity yields only a small and insignificant attenuation bias in the negative income-mortality gradient.

Conclusions: The main finding, a small and insignificant attenuation bias in the negative income-mortality gradient when failing to control for unobserved heterogeneity, is positive news for the many empirical studies, whose estimations of the income-mortality gradient ignore unobserved heterogeneity.