Econometrics: A Difficult Tool

Econometrics an important tool for economists to explore relationships between different aspects in society and measure causality. I like to think it is more than a way to confuse new econ majors and scare off the less mathematical inclined ones. But by combining statistical and mathematical methods, econometrics can be used to answer economic questions such as the progress of African Americans. Russ Roberts and James Heckman discuss this topic as related to econometrics on Econtalk and how this method can be trouble for more than just undergraduates.

Heckman sheds light on the African American progress measurement and brings up the issue of incarceration. The black males that get put in jail are essentially “taken out of the labor force” and the measurement loses some of its low-wage workers. The results may look promising, but they don’t fully reflect the real world. This problem is a frequent one for economists as many have to find ways to create measurements that overcome selection bias. A measurement that deals with this type of problem is unemployment. How does one account for stay at home parents or people in between jobs? Selection bias is a potential problem that can be a misrepresentation of the truth in any study as it can skew results.

This type of bias can be found in many different types of economic and social studies and it can make it difficult to recognize true causality. The state of applied econometrics is an ongoing discussion that is continued by economists such as Susan Athey, who brings up the topic of public policy and minimum wage. It is important to keep the conversation going and to take a look at economic applications that influence political decisions and policies.

Leave a Reply

Your email address will not be published. Required fields are marked *