Measurement of Inequality of Opportunities in the Philippines

----------A thesis submitted to the Economics Department De La Salle University – Manila

----------In partial fulfillment of the requirements for the degree of Bachelor of Science, Major in Applied Economics and Bachelor of Arts, Major in Economics

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Alba, Herbert Philip C. Dy, Kenneth B. Filio, Mack Daniel L. Ha, Irish Kristine M.
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December 17, 2008

Thesis Approval Sheet
This thesis entitled “Measuring Inequality of Opportunities in the Philippines” prepared and submitted by Herbert Philip C. Alba, Kenneth B. Dy, Mack Daniel L. Filio, and Irish Kristine M. Ha in partial fulfillment of the course requirements for Bachelor of Science, Major in Applied Economics and Bachelor of Arts, Major in Economics has been approved for submission.

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Dr. Lawrence Dacuycuy Panel Chair Chair, Economics Department

__________________ Dr. Winfred Villamil Defense Panel

__________________ Mr. Andrew Pua Defense Panel

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Acknowledgements
To our all benevolent God, this thesis witnessed to Your greatness. May Your name be glorified forever! Our gratitude extends as well to Our Lady’s constant intercession. To Saints Jude Thaddeus, Josemaria Escriva, John Baptiste de la Salle and to all the saints who have never ceased pleading for us before the heavenly courts. And to all our friends and families whom we sought prayers from, thank you! Dr. Dacuycuy, Dr. Villamil, Mr. Pua and Dr. Alba, we greatly appreciate the time and energy you spent for our insufferable consultations during and outside the designated time, and from the inception of our thesis until its culmination. This portion of our sojourn in college will definitely be an experience that will always be remembered and looked back to with joy. We have learned much from the counsel we received from you. Many thanks also to Dr. Francisco Ferreira for the support he gave us. We could not have finished this thesis without your recommended references. To our Methods of Research professor, Dr. Garcia, you were a great instructor to us all by incessantly challenging us to do better and we did. Of course, the authors of this thesis will not forget the Alba Family, including their hospitable schnauzer dog, Bronzer (of the Abyss), for lending their home to us and their refrigerator too. Mr. Miranda, Ate Menchie and the entire OCCS (Career) family, we are grateful for your hospitality and we hope that you will be equally generous come our next thesis for accounting. To all the members of DLSU BNE 2008 Block C-41, for their support and for the laptops they had lent to us. We apologize deeply for all the people, important and otherwise, that we have forgotten to mention here. You know how much this thesis meant to us and we are thankful for all your support.

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Abstract This thesis proposes a framework to measure of inequality of opportunities in the Philippines using combined Labor Force Survey (LFS) and Family Income and Expenditure Survey (FIES) for the year 2003. Inequality of Opportunity is attributed to the disparity between the equalized inequality and actual inequality. The methodology followed is a replication of Bourguignon’s et al. (2005) technique of quantifying the same for Brazil using 1996 household data. The premise of the framework involves equalizing the effects of factors from which an individual has no control (circumstances) to actual inequality. 4 .

3 Simultaneity Bias 3.3.4 Father’s Occupation 5. Results and Discussion 5. Framework 3.2.5 Schooling 5.2 Difference of Parents’ Education 5.3.1 A Different Perspective III.1 Regression Estimation Results 5.2.4 Simulation.2 Dependent Variable 4.2.2.1.1 Theoretical Framework 3.1 Average Parents’ Education 5. Data and Methodology: 4.6 Labor Market Status 5.1.7 Bootstrap Test for Counterfactual Inequality V.1 Normality 4. Computation of Inequality Indices.1.1 Selection of Observations 4.2.2.3.2 Reduced Form Wage Equation 3.3. and Decomposition 3.2 Equalizing Individual Circumstances VI.2 Non-multicollinearity 4.6 On Inequality Measures Used 4. References 6 11 12 23 26 28 29 30 31 32 36 39 40 40 41 42 43 44 46 48 50 55 56 57 58 59 61 61 68 74 78 5 .Table of Contents I.6 Limitations in the Replicating to the Philippines IV.5 Further Decomposition 3.3 Diagnostic Tests 4.5 Correcting the Bias 4.2. Appendices VIII.2.1 Structural Wage Equation 3. Introduction II.4 Omitted Variables Test 4. Conclusions and Recommendations VII.2 Decomposition Analysis 5.1.1.3 Regions 5.3.2 Empirical Framework 3.1 Equalizing “Circumstances” 5. Review of Related Literature 2.1.3.3 Homoscedasticity 4.3.

Males. Females. 1985 – 2003 Figure 2: Inequality Indices Decomposition – Males Figure 3: Inequality Indices Decomposition – Female Figure 4: Equalizing “Circumstances” . Robust OLS Table 2: Wage Equations.List of Tables and Figures Tables Table 1: Wage Equations.Male Figure 5: Equalizing “Circumstances” – Female Figure 6: Equalizing Individual Circumstances – Male Figure 7: Equalizing Individual Circumstances – Female 6 .Female Table 5: Equalizing “Circumstances” – Males Table 6: Equalizing “Circumstances”– Female Table 7: Equalizing Individual Circumstances – Male Table 8: Equalizing Individual Circumstances – Female Figures Figure 1: Philippine Gini Index. Robust OLS Table 3: Inequality Indices Decomposition Results – Male Table 4: Inequality Indices Decomposition Results .

the inherent virtue of socialism is the equal sharing of miseries. (Argy. with some benefiting much more than expected. some not benefiting at all.Sir Winston Churchill In the 2008 World of Work Report of the International Labor Organization (ILO). Indeed. among other nations." . Such an alarming condition calls for a much greater attention for economists and researchers to dwell on the topic of inequality.Chapter 1: Introduction The inherent vice of capitalism is the unequal sharing of blessings. As evidenced by a recent study. the benefits of globalization are not shared equally. some becoming the so called “victims of globalization”. or worse. approximately two thirds of the countries included in the World of Work Report 2008 7 . The country’s status of being last in the list did not change even though modest declines in the Gini Coefficient had occurred in the Philippines from the periods 1990 to 2000. has tried for generations to promote fairer society through its six policy goals. In another end. it has been considered as one of the top priorities in the social agenda of many countries. the Australian government. 2006) With globalization in hand. For years. the overall income levels for many countries have risen. As such. governments have tried to formulate policies that aim to reduce income inequality. the Philippines is ranked as Asia’s worst for exhibiting high income inequality.

447 Gini Coefficient in 1985.466 in 2003 which implies a worse distribution of income within the country. international inequality and also within-country inequalities. considerations have been made in assessing global income distribution which looks into global inequality as a whole. 2008) In this situation. the richest 10% of the population income was still more than twenty times that of the lowest 10% despite a slight improvement it had demonstrated in the overall distribution since 1997. Looking into our own country. (ADB. it slightly increased to 0. (World Bank. (ILO. 2004) The Gini Coefficient in the Philippines was somehow consistent through the years. (ADB. (See Figure 1 below) From a 0.experienced an increase in income inequality indicated by changes in the Gini index between years 1990 and 2005. In 2003. 2004) 8 . 2007) This implies that it is important to evaluate inequality not only in terms of other countries but also within themselves. the Philippines exemplified high income inequality.

this type of inequality has failed to answer the increasing questions and debates arising currently. In search for answers. specifically income distributions. researchers have come up with different studies regarding inequality with some concentrating on how it affects outcomes an individual experiences. the Philippine government has looked at inequality in terms of these outcomes. it is needless to say that a solution is imperative. 9 . Philippine Gini Index 1985 to 2003 With this in mind. Throughout the years. (Lefranc. Although straight forward and easy to understand.Figure 1. 2006) Is there a better way to look at inequality? Does the government really need to equalized income? Is it fair to fight inequality for those so called unequally treated people who do not contribute for the improvement of their own conditions? These questions have led people to engage into other ways of looking into inequality.

In line with this trend. Anerson and Cohen (1989) also following Rawls’ idea factored in the issue of personal responsibility on equality or looking into equalizing opportunities instead of outcomes (Lefranc. (2007) and by employing the combined Philippine Labor Force Participation Survey (LFS) and Family 10 . 1971) Stated in another way. despite the increasing literature on the topic. empirical applications still remain scarce. equality requires that people with similar efforts face the same prospects of success regardless of their initial place in the social system. Various economists and researchers have tried to find a way to measure inequality of opportunity. a number of methods have been proposed in different countries. Some of these efforts to measure inequality of opportunity will also be discussed in the review of related literature. According to him. Yet. this paper will aim to measure the degree of inequality of opportunity associated with the 2003 empirical distribution of hourly wages in the Philippines using the procedure used by Bourguignon et al. Roemer and some of the other researchers’ ideas about inequality of opportunity will be elaborated in the review of related literature. interests have been diverted to this particular topic and. Dworkin (1981). 2006). A Theory of Justice. (Rawls. although limited. John Rawls introduced the idea of Fair Equality of Opportunity. Recently.In one of his most celebrated book. an individual’s background should not affect the individual’s potential for outcomes.

Having established the fact that empirical applications of measuring inequality of opportunities are scarce. it is but proper to proceed with caution. This thesis does not guarantee the accuracy and reliability of results as far as policy implications are concerned. The value of this thesis lies in its contribution to the empirical literature of inequality of opportunities. however.Income and Expenditure Survey (FIES) of 2003. A point of concern. must be clarified. (2) measure the degree of inequality of opportunity in the Philippines and (3) know the extent of effects of certain variables to wages. 11 . (See Chapter 3 Framework and Chapter 4 Data and Methodology) This paper aims to (1) know the extent of income inequality caused by differences in family background and other circumstances. this fundamental attempt to quantify the same for the Philippines has surely encountered certain drawbacks. Therefore.

Encompassing a social dimension that affects the lives of the people. In the field of economics. a different trend in analyzing inequality in terms of opportunities. studies of inequality concentrate on different areas such as health care. 2008) That is why researchers have for many years been analyzing income inequality along with other economic indicators to lessen the emphasis on inequality per se. 12 . education. however. and Cowell. land distribution and especially income. a wide array of ideas regarding the theories of equality has been present in studies such as inter alia. There is. both individual and household level. talent and innovation which are overriding engines of economic growth and wealth creation. can be a good thing because it serves somewhat as an incentive system for people’s work effort. Atkinson. studies look on how benefits in areas are distributed with the ultimate goal of reducing poverty. equality has still been the topic of many researchers in seeking added value to its already established literature. Matthews (2005) shows how income inequality has been included in different aggregate measures of social well-being. although not too much. Particularly.Chapter 2: Review of Related Literature Inequality has been among the most discussed subject in the social sciences. But a different and increasingly popular view says that rising income inequality. (ILO. in economics. Rawls. Moreover.

Lastly. which enable individuals to freely exercise their consciences..” Moreover. as cited in Ferreira and Gignoux (2008). The idea of equality of opportunity could be traced back to Rawls wherein he presented his two theories of justice: (1) equality of opportunity in terms of political and civil liberties and education.1 A Different Perspective According to Ferreira and Gignoux (2008). First. hourly wages.e. in which equal political rights are provided and where equal opportunities in educational and occupational choices are being established. it is proposed that looking on inequality of opportunity rather than inequality of outcomes could lead to a better understanding on the relationship of aggregate economic performance like GDP and inequality in society. 2007). i. and live their chosen way of life. The author also added that it is also in a sense egalitarian since it ascertains a fair equality of opportunity. there are at least three reasons why it is important to distinguish inequality of opportunity from that of an outcome. his conception of justice is democratic. opine that inequality of opportunity is important in designing public policy. His ideas are elaborated in his two prin13 . inequality of opportunity may affect people’s attitudes towards redistribution and their beliefs about social fairness. and (2) distributive justice (Freeman. Anerson (1989). As Freeman (2007) puts it. the least advantaged maximally benefits at its social minimum. say. Roemer (1998) and Peragine (2004). decide their values. Second.2. “(Rawlsian justice) is a liberal conception in that it protects and gives priority to certain equal basic liberties.

2007) The primary reason for this principle is that it is integral to the equal status of free and equal citizens. sex. According to Rawls. gender.ciples of justice although the second theory of justice particularly the concept of fair equality of opportunity is what is more relevant for this thesis. people who are not given fair opportunities are “debarred from experiencing the realization of self which comes from a skillful and devoted exercise of social duties would be deprived of one of the main forms of human good. Fair Equality of Opportunity also requires that those with less natural talents be given greater educational benefits than normal in order for them to effectively take advantage of all the opportunities in the society by developing their own capacities. As further explained by Freeman (2007). One of his two institutional requirements imposed for FEO is maintaining equal opportunities of education for all. 2007) 14 . those with similar abilities and skills should have similar life chances. a duty to provide educational opportunities is imposed by FEO so that those with similar talents who are socially disadvantaged are given the chance to compete fairly against people who are more advantaged in terms of social class.” (Freeman. Secondly. The idea of fair equality of opportunity (FEO) is having no restrictions on entry into desired social and political position. (Freeman. religion or social status. Qualification for these positions must not be based on race.

a person cannot be totally held liable for his actions as well. 2006) On the same year. Dworkin (1981) separated a person’s attributes into two sets: one for which society can hold him responsible for and the other set. because if everyone is given the same chances 15 . (Roemer. it is better to be concerned with how well people could function with those goods. (See Chapter 3 Framework) Thus. This caveat was taken into consideration by Bourguignon et al. (2007) and their method will be followed in this thesis.However. the concept of equality should be concerned with the equality of opportunity sets (Roemer. 2006) Roemer (2001) also commented on Dworkin’s work and stated that there are gray areas in distinguishing between preferences and resources when a person’s preferences are functions of his resources. since it is to some extent a function of things for which he should not be responsible for. 2001). respectively. these two attributes are a person’s preferences and resources. otherwise. Specifically. Thus. He then proposed to use the capacity of society’s worst-off members to function as a measure of social welfare. and Anerson proposed the equalization of opportunities for welfare. Sen (1981) criticized the work of Rawls and argued that rather than being concerned with the goods people received. (Roemer. Ronald Dworkin augmented Rawl’s work. his work was disapproved by Anerson (1989) and Cohen (1989) as an incorrect criticism of Rawls. Nevertheless. although convincing.

although genes matter a lot. The researchers believe that. government policies should be aimed only at leveling the playing field. such that the individuals’ outcome is a function only of the efforts that he gave and not his circumstances (Roemer..e. say. With the idea of equality in terms of resources/opportunities. any differences in outcome will be the result of that person’s actions.. (Borguignon et al. What of a person’s genetically preconditioned mindsets and other physiological conditions derived at birth? Do these naturally-inherited ‘bads’ make the idea of equalizing resources/opportunities moot? These arguments are variants of environment-affects-action argument discussed before. but the final outcome arising from their individual preferences/efforts are things which the government/society should not be responsible for anymore. Roemer (2001) formalized Dworkin’s concept by formulating a function for an individual’s outcome/advantage. i. it will not influence his/her actions so much that there is no more hope for success. even though those same actions were partly caused by his environment. that is dependent on his/her cir16 . the question is how governing bodies should act upon these lines of thought.of having a good life. 2001). 2007). Furthermore. income or life expectancy. there are government and private institutions that directly provide special care to specific disabled or dysfunctional members of society. But then other nuances present themselves. Dworkin (1981) said in his conceptualization that a person should be given equal resources. Moreover.

2 For Van de Gaer et al. he said that the idea of equality is consistent with the normal intuition that people should be compensated for bad luck and held responsible only for their actions. a person is advantaged by 1 For a more thorough discussion of Roemer’s formulation and hypothetical and empirical examples. it is now the policy intervention that should level the playing field. consequentialism. efforts (e. years of schooling) and policy intervention. Hild and Verhoeve (2004) reiterated these same ideas of Roemer using the idea of unjustifiable inequalities due to opportunity principles and justifiable inequalities due to distribution principles like merit..g. Social Choice and Welfare. 19:455 – 471. then to the second-most disadvantaged etc. We say that φ is as good as ψ conditional on y just in case the worst-off y-individuals under 17 . the second worst-off y-individuals under φ are better off than the second worst-off y-individuals under ψ.1 In Roemer’s conclusion. parents’ socio-economic status). In mathematical notation this can be written as: . The circumstances are outside of the person’s responsibility. etc. (2001). refer to Roemer’s work (2001) “Equality of Opportunity: A Progress Report”. And since each individual’s circumstances differ. 2 Their formal statement was that (conditional Leximinism) tends first to the most disadvantaged. and theory of personal responsibility. in case of a tie. it is only the effort that is under his freedom of choice.cumstances (e. But they further qualified Roemer’s conclusion by stating that a certain policy is better than another policy if the worst off individual (under a given effort distribution) in the former is better off than that same individual in the other policy instrument. Further discussion will be included in the next chapter..g. (Sen 1970): A policy φ is better than a policy ψ conditional on a combination of relevant characteristics y exactly when the worst-off yindividuals under φ are better off than the worst-off y-individuals under ψ and.

’s idea because those policies from Roemer are more able to favor the worse-off. even if that person is individually disadvantaged. We say that φ is at least as good as ψ conditional on y exactly if φ is as good as or better than ψ conditional on y. 2006) Nonetheless through continuous efforts. despite these discussions. φ are as well off as the worst-off y-individuals under ψ and the second worst-off y-individuals under φ are as well off as the second worst-off y-individuals under ψ. etc. welloff. irrespective of the irrelevant characteristics (circumstances in Roemer). (Lefranc et al. 2004) This is called “Utilitarianism constrained by equality of opportunity”.” “A policy attains equal opportunity when individuals with the same relevant characteristics (efforts in Roemer). Empirical implementation of these definitions of equality of opportunity would be straightforward if circumstances and effort were observable which is however not satisfied in practice since information on the determinants of individual outcomes that empirical application of equality of opportunity requires is not entirely available in existing data sets. attain the same outcome.the mere fact that the group he belongs in are. 3 18 . But Hild and Verhoeve (2004) were able to prove that policies based from Roemer’s idea of the underprivileged class and the policies based from the opportunity-constrained utilitarianism3 is better than policies based from Van de Gaer et al.” (Hild and Verhoeve. on average. empirical applications of equality of opportunity remain scarce.. empirical studies about the inequality of opportunity have been increasing. However.

This then led other authors to look into the fiscal system as opportunity-equalizers in other countries as well. (2006) examined in another paper the relationship between income inequality and income opportunities for earning capacity for nine 19 ..S. Lefranc et al. Using stochastic order dominance. On the same year. 2007) An addition to the empirical works is the paper of Lefranc et al. They found out that race has more impact than parental education. Roemer then continued his study with Page (2001) and examined the U.One of the earliest empirical studies was done for the United States. S. Betts and Roemer (1999) used race and parental education as determinants of opportunities to know what reallocation in the educational expenditures was needed to equalize opportunities across four types of individuals classified based on National Longitudinal Survey of Young Men. fiscal system as an “opportunity-equalizing device”. (Bourguignon et al. tax system contributed in equalizing opportunities across socio-economic groups. the study results showed a decreasing trend on the degree of inequality of opportunity. The results showed that the U. the authors also used race and parental education as the key circumstance variables. (2006) which analyzes equality of opportunity for income acquisition in France over the period 1979-2000. the authors found that social inheritance is one of the root causes of inequality of opportunity. but much less across racial groups. As with the previous study.

and Italy are the most unequal in both outcome and opportunity. like Lefrac (2006) also utilized a non-parametric approach in measuring inequality in income and educational achievement in Southern and Northern Italy. Checchi and Peragine (2005). Sixty percent (60%) of this effect is direct. The results showed that the dominant circumstance variable was race. extended his study to six Latin American countries using both parametric and non-parametric estimation of inequality of op20 . S. Ferreira. (See Chapter 3 Framework) They found out that around 10 to 37 percent of observed earnings inequality can be attributed to circumstances. Their paper added new circumstances and effort variables such as region. 2007) Then. They decomposed observed inequalities in earnings and in cognitive abilities (as measured by reading literacy scores for 15-year-olds) in Italy utilizing parental education for circumstance and efforts through the residual component.. The results showed that U. while the remaining 40% indirectly operates through the level of individual efforts. A closely related paper to Lefranc (2006) which also looked into inequality of opportunities through wages and earnings in Brazil is Bourguignon et al.developed countries. The paper measured social origin by parental education and occupation. together with Gignoux. (Bourguignon et al. They again used the stochastic dominance criteria which are assessed by non-parametric statistical tests. migration and labor market status. (2007) which is the base article of this thesis.

(Ferreira and Gignoux. They tried to compare the results of the two methods for the six countries. by separating the education of the father from the mother. dependent on her parents’ income class. 2006) regard social mobility as a measure of inequality of opportunity. 2007) Then. some authors (Van de Gaer et al. Van de Gaer et al.. Schultz. as expected due to sample size constraints.portunity. provided a comparable measure for 54 countries of how strongly children’s educational performance is related to their family background which they used as a proxy for the extent of inequality of 21 . Ferreira and Gignoux’ (2008) results show that non-parametric measures are higher. 2008) On another note. But the difference between the two measures is small and often insignificant. Their work had been a great step but was criticized due to lack of applicability when multiple circumstances and not just parents’ income are taken into account. (2001) proposed their own index for inequality of opportunity based on the expected person’s income. 2005. Argy. Also. aiming to formulate education policy. than parametric estimates. The authors also observed that Brazil and Central America are the most unequal in terms of opportunities among the countries included in the study. they found out that the mothers’ education plays a higher role than the other spouse in affecting the inequality. 2001. Schultz (2005). It estimated a lower bound and discovered that around 24 to 50 percent of inequality in consumption expenditure is due to unequal opportunities.. (Borguignon et al.

The results showed that the Philippines ranked 34 among 54 countries by having a Family Background Effect (FBE) of 16. including but not exclusively family background. the former is not intended to be estimates of the latter and they are not perfect substitutes as well. social mobility focuses on measuring the transmission of one specific economic indicator which is usually earnings or incomes while equality of opportunity measures the aggregate effect of all observed circumstances.. on current inequalities. Besides. 2007) The most recent development in the field of measuring inequality of opportunity is the formulation of the Human Opportunity Index (HOI) by World Bank. Although social mobility and inequality of opportunity are closely related concepts since family background serves as a key determinant of opportunities. (Bourguignon et al. (2007) pointed out that the two concepts should not be interpreted as such. Bourguignon et al. Having a high FBE would mean that the country provides their students with the least equality of educational opportunity.opportunity.53% in terms of international standard deviation in test scores. It is a measure of inequality of opportunity 22 . Yet notwithstanding these studies that used social mobility as a measure of inequality of opportunity.

whether the distribution of that coverage is related to exogenous circumstances.regarding basic services for children. etc. 2008) And for all of these variables. (World Bank.. when D-index is positive. that is.e. electricity and sanitation. the coverage rate of a basic service.4 The World Bank applied HOI empirically to 19 Latin American and Caribbean countries over the years 1995-2005. school attendance of children aged 10-14. This comparison is what the D-index measures. The Human Opportunity Index summarizes in a composite indicator both elements: (i) how many opportunities are available. According to World Bank (2008). the HOI is computed using the Dissimilarity Index (Dindex) which is a widely used measure in sociology for inequality of opportunity. the results of HOI for the variable “completion of sixth grade on time” 4 The dissimilarity of access rates for a given service to groups defined by circumstance characteristics (for example. gender. i. the HOI was below a certain coverage rate. thus increasing the HOI. As an illustration. parental education. 23 . Furthermore. The five basic variables for which the HOI was computed were finishing sixth grade on time. location. an increase in coverage in favor of a disadvantaged group such as a poor region will reduce the inequality of opportunity. and (ii) how equitably those opportunities are distributed. that is. Thus. as well as access to water.) is compared to the average access rate of that service to the entire population.

shows an indicator below 50%. Brazil. Meanwhile.showed that in Jamaica. France. As the cited studies show. and Uruguay more than 75% of the opportunities necessary to guarantee complete access are available and have been distributed in accordance with an equality of opportunity principle. Mexico. Honduras. 24 . Argentina. albeit it has been applied as well to Italy. Ecuador. El Salvador. and Guatemala. Nicaragua. Chile. the efforts of measuring inequality of opportunity has frequently been done in Latin American countries. Africa and Australia.

Following the base’s article general form model. The circumstances are treated as exogenous in the model. whereas the effort variables are endogenous. Therefore. denotes the outcome of interest. denotes a vector of circumstance denotes other random denotes a vector of effort variables. (1) where variables.Chapter 3: Framework 3. three conditions must be satisfied 25 . based on this concept of equality of opportunity. Thus. Efforts can be thought of as being also dependent on circumstances as stated in the review of related literature such as when the schooling of the child is influenced by the schooling of their parents.1 Theoretical Framework A focal point in the measurement of inequality of opportunities is an understanding of Roemer’s (1998) discussion about the so called “circumstance” and “effort” variables. meaning the distribution of wages given the circumstance variables must be the same as the unconditional distribution of the same stream of wages. (1) can be rewritten as (2) Roemer’s (2001) definition of inequality of opportunities requires that F(w|C) = F(w). and factors like pure luck and other unobserved circumstances and efforts.

when the conditional distributions F(w|C) differ across the elements of C. Ferreira and Gignoux (2008) compared measurements on inequality of opportunity 26 . (2007) interpreted this manner of measuring inequality of opportunity as a “lower bound” estimate of the inequality of opportunity. (b) . which implies that each effort variable should be distributed independently from all circumstances. and (c) H(u|C) = H(u). Therefore. In line with this. inequality of opportunities exists. (Ferreira and Gignoux. measuring the extent to which F(w|C) is not equal to F(w) is how we can measure inequality of opportunities in the sense that Roemer (1998) formally conceptualized it. which implies that no circumstance variable should have a direct causal impact on w.as follows according to Ferreira and Gignoux (2008): (a) . 2008) And owing to the lack of observed circumstances explicitly included in the model. Bourguignon et al. which implies that random factors and luck are also independent from circumstances.

using both parametric and non-parametric methods and compared the results of the two methods. The non-parametric measures, both smoothed and standardized distribution, are always higher than parametric estimates because (1) partitions with few observations and high sampling variance tend to overestimate the nonparametric indices, and (2) there is also a downward bias caused by (linear) functional form restrictions used in the parametric estimates. (Ferreira and

Bourguignon, 2008) But making use of these two decomposition methods separately for individual earnings, household per capita income and expenditures per capita, their results show that the Mean Log Deviation differs only 2 – 3% between the two methods, although some individual earnings decomposition, i.e., in Ecuador, Guatemala and Panama, show differences up to 7%. Furthermore, the differences are mostly insignificant, with some differences being border-line significant.
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Aside from the generally small insignificant difference in the results between parametric and non-parametric techniques for Latin America, there are also other

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Recall that in the Chapter 2, this is the only inequality measure that is path-independent, meaning for non-parametric measures, a smoothed distribution and a standardized distribution will yield the same values. Ferreira and Guignoux (2008) used Theil Index and half the square-root of the coefficient of variation in their decomposition.

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practical reasons for employing parametric estimates, which is not to place judgment on the superiority of one decomposition method to another. One, nonparametric measures need large sample sizes. But the nature of the study of inequality of opportunities following Roemer’s definition requires dividing the population into groups/partitions for every circumstance and then classifying them into different categories within a specific type of circumstance. And the more observed circumstances used in the model, the fewer observations will be available per partition, consequently increasing the upward bias mentioned above. Second, the use of parametric estimates allows researchers to control for the effects of circumstances and study them one at a time. (Bourguignon et al., 2007; Ferreira and Gignoux, 2008) This will be elaborated in Empirical Framework which follows.

In light of these reasons, the proponents of this thesis will make use of the parametric method in measuring the inequality of opportunities in the Philippines. Always take note that opportunities here refer family background and region. 3.2 3.2.1 Empirical Framework Structural Wage Equation 28

The empirical model that will be utilized in this thesis will be a replication of Bourguignon et al.’s (2007) decomposition of the Theil’s Inequality Index. This section of the paper will present a summary of their procedures. They begin by taking Roemer’s (2000) formalization of inequality of opportunities and outcomes as discussed in the review of related literature. Using the 1996 Brazilian PNAD data, they used the following system of equations and applied them to an agecohort analysis of the distributions of hourly earnings (from all sources) in urban Brazil, separately for both men and women6. (Bourguignon et al., 2007)

(3)

(4)

where

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Equation (3) shows that wages as a function of the circumstance and effort variables. This is the log-linear functional form of Equation (1). Conventional approach to estimating returns to schooling functions such as in Equation (3) utilizes the log-linear form because wages/earnings are usually lognormally
6 7

But they reported the results for men only in the final version of the paper. In an earlier version of the paper, there were the Bourguignon et al. (2005) they estimated the “effort” variables separately using OLS for Schooling variable, probit model for the Migration variable and multinomial logit for the labor market status. Therefore, their notation here must not be misunderstood as all linear equations for each of the three effort variables.

29

These coefficients are called the direct effects of the circumstances to the wages because they also have an indirect effect through the effort variables. The coefficients of the circumstance variables are given by the ’s. it is illogical to think that these variables are independent of the circumstance variables.2. government employee. employer.. 2005) 9 In earlier versions of their work. and other measurement errors. efforts. (Bourguignon et al. self-employed.. and difference in parents’ education ( )8.. causes bias in OLS estimates.distributed. i.e. say. The error term ( ) accounts for unobserved circumstances. 2005) The circumstances were derived from Roemer (2000) who discussed that family backgrounds are the appropriate circumstance variables. These are region ( ). those for which the individual should not be made responsible for. But no systematic relationship was seen in the Brazilian data. one for each of the effort 8 This variable accounts for the asymmetry in the role of parents’ education. This endogeneity. a = 1 would mean Region I. hence the second set of equations.2 Reduced Form Wage Equation Equation (4) is actually comprised of three equations. 30 . 3. (Stewart. race ( ). (Bourguignon et al. But this variable can be deemed as both being a circumstance and effort. mean parents education ( ). (Bourguignon et al. (2003. along with omitted variables. As mentioned earlier. for regions. The subscripts a and g denote specific categories of the dummy variables. 10 The migration variable is a binary dummy which indicates whether the person’s family has moved from one region to another. migration ( )10 and labor market status ( )11. Bourguignon et al. private establishment.. 2005) 11 This variable indicates whether a person is a private household. 2007) The efforts variables are schooling ( )9. 2005) included schooling squared to account for the non-linear effects. or family business-with pay. family business-without pay.

j=2. thus giving a reduced-form equation: (5) Equation (5) is the log-linear form of equation (2).. (2007) stated in their paper that there is no more need to estimate equation (4) and then to subsequently substitute it to an estimation of equation (3). and must be estimated using binary and multinomial qualitative choice models.3.…K where K is the number of variables in the model.e.2. only can be estimated using OLS. Put another way. Note that even though the notation above makes it seem like they are all estimated as linear equations.3 Simultaneity Bias A moment’s notice will allow the reader to check that the system of four equations 31 . If one estimates equation (5) it will already serve the purpose of capturing the direct and indirect effect of circumstances. the three equations in Equation (4) can be substituted to Equation (3). where the ’s are the complete ’s are impacts of circumstance variables to the log wages. the the composed of the direct effects and the indirect effects through the effort variables. Once they are estimated. i. 3. respectively.variables. albeit it is more accurate to estimate the effort equations and then substitute the estimate equation to the structural equation of log wages. Bourguignon et al.

e. The process involves simulating equation (5). (2007) was to get the share of the “opportunity” (indicated by the circumstance variables) to the total observed/actual inequality per age-cohort. 12 To be at least just identified. As the first equation does not exclude any variable at all.. 3. 1991 as cited in Gujarati.2. they computed a counterfactual inequality index.e. The only solution after this.e. 2003) 32 . Their procedure is to make counterfactual inequality indices that would prevail had the circumstances been equal across all individuals. i. and obtaining counterfactual streams of “completely equalized” wages .12 Making use of the Simultaneous Equation Methods (SEM) will not be possible in the presence of unidentified equations. they do not have the lowest possible variance. etc. I(∙). cannot be used. 13 The process of computing for the bias will be discussed in the Methodology. by virtue of the necessary condition for identifiability.. would be to insist OLS and estimate the bias term.here is not identified because the first equation includes all the variables. Using this simulated stream of wage. if there is no simultaneity bias and one uses SEM. i. are also (exogenous) explanatory variables by their own right in their model. Interestingly. But Bourguignon et al. (2007) were unable to find satisfactory instrumental variables because the usual instruments. A problem out of simultaneity bias.. and Decomposition The main goal of Bourguignon et al. 2003) 13 An OLS estimate in the presence of simultaneity bias causes the estimates to be biased and inconsistent. the structural wage equation. the coefficients are inefficient. every equation should at least exclude M-1 variables (both endogenous and exogenous variables) where M is the number of endogenous variable.4 Simulation. the correlation between the stochastic error and the (stochastic) regressors ( use instrumental or proxy variables which are independent of ). (Pyndick and Rubinfeld. simultaneous equation techniques like 2SLS or FIML. i. as the authors of the base article did. is to . family background. (Gujarati. Computation of Inequality Indices.

where (7) 33 . Therefore. simulations of Equation (3) are computed because this equation allows the effort variables to keep their observed values and only the direct impact of circumstance variables will be captured by the ’s. where (6) where I(∙) is a specific measure of inequality for the actual stream of wages and the counterfactual stream.say Gini Coefficient or Theil’s Entropy Measure.. 2007) . one can measure the opportunity share of wage inequality by: (Bourguignon et al. After obtaining this counterfactual stream. The process gives us another simulated stream of “partially equalized” wages where d denotes direct. The bar on top of the vector C denotes that the circumstance j’s have been “equalized’ across individual i’s. one can obtain the share of actual inequality attributable to the direct effect of circumstances in the same manner above as follows: . a particular inequality index I(∙) is computed. instead of generating a simulated stream from Equation (5). Then. The is a vector of parameter estimates of Equation (5). They also further divided this opportunity share into direct and indirect effect of circumstances by allowing the effort variables to take on the observed values. One can see that the authors had measured the percentage of inequality index that would be eliminated if the circumstances were made equal across the people. Then.

to the overall inequality. the and are vectors of parameter estimates of Equation (3).2. that and are parameter will be made constant across individuals in the simulation. Thus.Notice that now. one advantage of using parametric estimates is that it permits researchers to isolate the effects of circumstances among each other. and their indirect effect through the effort variables. . as opposed to the share of all the circumstance variable taken collectively. Then measuring the share in the same manner above.2. mean parents’ education.. i. The indirect effect is simply the difference between the total opportunity share and direct opportunity share. say.6 Limitations in the Replicating to the Philippines 34 . we can study the share of. 3. we can study the changes in the wage distribution by keeping only one circumstance variable constant (directly and indirectly) and letting other circumstance variable vary. say. the “effort” variables are included in the simulation of counterfactual wages. 3. estimates of Equation (5). Ferreira and Gignoux (2008) used this notation: (8) where is the specific circumstance variable. In other words. Again.5 Further Decomposition As mentioned earlier. we have a partial/direct effect of the circumstance variables to the inequality of wages.e. mean parents’ education.

there will be a final “screening” and from there.This thesis is an attempt to replicate the study of Bourguignon et al. i. Later. although it may also be a circumstance like when the parents were 14 This is Type 4 replication since the researchers are applying a different data set and is effectively changing the model as well since there are restrictions in the replication study. 15 If the father had a job before. This section will outline those aspects that cannot be replicated in this thesis14. there will only be data only if the father was still alive and working15. But there are some aspects that the proponents of this thesis is unable to perform. only those whose father had occupation at that time were included in the study of the Philippines. only households with sons/daughters and at least one parent were chosen. (2007) using Philippine data. there will be no way to figure that out given the data.. For the case of father's occupation. By contrast. the final dataset will be chosen. All these data limitations lead to fewer observations to be included in the analysis.e. Bourguignon et al. (2007) used had specific data regarding a person's family background like father's occupation and parent's education. 35 . "Migration" here does not mean overseas migrant or worker. (2007) used this term to denote whether the household shifted from one region to another. And from this lot. largely due to the lack of data needed to implement their model. The 1996 PNAD which Bourguignon et al. Another limitation on the Philippine data is regarding migration. This is seen as an effort. the Philippines does not have data regarding family background and the proponents of this thesis can only derive the data on the parent's education only if the parents were alive or were present at the time the survey was done.

. (Bourguignon. The specific equation that will be used for this thesis will be: (9) Equation (9) is this thesis’s version of Equation (3) above. 2007) Although this is an effort on the part of the parents. and the proponents used the unskilled workers and laborers (#9) as the base category. secondary and tertiary schooling. There are 10 single-digit classifications in the FIES-LFS dataset. et al. The study in Brazil had real hourly wages for self-employed.the ones who decided for the entire family that they should move to a different region. Therefore. and family business without pay. The researchers cannot find data on hourly wages for Filipinos who are under those labor market statuses. as the base category. There are 17 regions in the Philippines and the proponents used NCR (#12). those individuals who are self-employed. this is not an effort for the sons and daughters. employer.. i. A squared schooling variable is used to parsimoniously account for non-linearity in the effect of schooling. being the host region of the capital city of the country. There are only 36 . employer or working in family business without pay and those who have no data regarding hourly wages will automatically be dropped from the regressions.e. separating the returns to schooling for primary. although other researchers have made use of spline functions. This is the final “screening”.

It follows. 37 . then that the reduced-form equation that will be estimated in this thesis will be: (10) These limitations in the database will affect the significance of the parameter estimates in the older cohorts because there will be fewer observations that will be used given the choice of households to be included in the study.three labor market statuses that have enough basic pay per day data and the proponents used private household (#1) as the base category.

although present already in the dataset. the researchers will implement the framework discussed in the previous chapter. But the FIES-LFS data is constructed in such a way that the position in the family of each individual is relative to the household head. To illustrate. there is a need to alter the data to pick them from the right people in the household and then to place them in the right order. in a sense because all the data required in the model. before this is possible.. Now. i. Therefore. mother and children are in the household. son/daughter of the head. the Father’s Education has to be in the same line with the row of the son or the daughter. “Derived”. i.e. father of the head.e. etc. wife/spouse of the head.1 Selection of Observations Much of the variables to be used in the model will have to be derived. each variable needed in the model should be in the same row.. 4. the variable for “Father’s Education”16 is on the same row as the father of the household. there is a need to first identify who the father. Using Stata 10. are not in their proper arrangements. 38 . 16 This is taken from the data on Highest Grade Completed in FIES-LFS. But to be able to implement the model just discussed.Chapter 4: Data and Methodology: This research paper uses the combined data of Family Income and Expenditure Survey (FIES) and Labor Force Survey (LFS) in 2003 from National Statistics Office (NSO).

it is complicated to extract the necessary data needed in the model. children of the head of household. or sibling of the head of household (again. This same reasoning goes for their “parents” as well. Also. spouse of the head of household or parent of the head of household. Fathers and Mothers are those who are head of households (with or without a spouse). so it will be put in Appendix 2. It could mean that the father had no occupation at that time. but he most certainly had a job before. or it could mean that the father really did not have a job at all even before. employers. grandchildren or some other relationship with respect to the household head. For those households that are not headed by a parent or a child of the parents.In brief. A “no response” could also mean that 39 . with at least one parent in the household). or working in their family business without pay were removed for reasons already discussed in the previous chapter. those who belong to households having no response for Father’s Occupation were removed because the coefficient of such dummy variable is not sensible due to varied interpretations of a “no response” value for Father’s Occupation. Sons or Daughters as used in this thesis are those who were head of the household (with at least one parent in the house). After all the alterations. Discussing the entire procedure as to how the proponents got the data format required for the model in Stata 10 is quite involved. those individuals who are self employed. This is the reason why there is no Son or Daughter who are niece or nephew.

88%) observations remain. are also included. correcting for selectivity bias decreases the return to schooling by 1% to 2%. (2007). 40 .e. even without a parent. from ages 16 to 40. there is a possible selectivity bias in the estimation of wage equations. male and female. non-wage earner stayer. The final included observations in the regression are. only 5. and migrant workers. As not all the observations in the dataset are included in the analysis. Some observations where they are residing with their siblings. therefore. with regard to schooling variable. also partitioned his data into wage earner-stayer (with parent). He has shown that in the Philippines.there was no longer a father to begin with. The entire dataset from the FIES-LFS is 207. Father Occupation_0 = 1. including these observations would confuse the interpretation of the coefficients of that dummy. but after the alterations and restrictions made in the dataset. in contrast with Bourguignon et al. or government) Sons and Daughters who are living with at least one parent in the household.967 (2. see Appendix 1. They both used the Heckman Selection Model for addressing selectivity bias. Being an initial endeavor in the Philippines to dwell on the issue of inequality of opportunity. wage earner (in private household. Therefore. Mallucio (1998).264 individuals. the Heckman Selection Model has been forgone.. private establishment. i. For a summary of the descriptive statistics for male and female. studying private returns to schooling in the Philippines. who did not find any significant selectivity bias for male wage earners in Brazil.

(2) Private Establishment. the researchers will take the average years of education between the intervals of periods. The Double-digit data will be too expensive in terms of degrees of freedom to include in the model18. the Father’s Occupation used in the model is the Single-digit Primary Occupation under the FIES-LFS database. the proponents of this thesis will not treat Father’s Occupation as a single variable but as dummy variables. As in Bourguignon et al.2 Dependent Variable Before discussing the procedures in cohort regression and choosing the proper model. Next. and (4) those paid workers in their family business (albeit seldom). neither do self-employed and employers have basic pay per day data. But observations in “paid workers in family business” are not used because there are very few in numbers. 2 if elementary graduate.4. The 17 18 The respondents are asked their normal working hours per day during the past week. To illustrate. starting from ages 16-20 and ending in ages 36-40. (2007). 41 . The “Hourly Wages” was computed from the database by dividing the Basic Pay per Day by the Normal Working Hours per Day17. This is important because it should caution the readers in interpreting the results..5 (Grade 5 / 2). Basic pay does not include the additional compensations earned.e. etc. i. The dataset was divided into 5 fiveyear interval cohorts. As will be discussed in the later paragraph. elementary undergraduate will be given a value in years of schooling of 2. the FIES-LFS employs staggered levels of education. Lastly. some technical notes on the data are necessary. (3) Government. there are only four categories that have Basic Pay per Day: (1) Private Household. In the database. 3 if high school undergraduate. the value is 1 if elementary undergraduate.

test for normality using Jarque-Bera Test. reveals that. 4. 4.e.. of estimation but it is necessary for inference. This reflects the positive relationship between wages and age. the average hourly wages are rather fluctuating and surprisingly higher than that of their male counterpart in almost all cohorts (and overall).e. A visual inspection of descriptive statistics (Appendix 1). i.. test for non-multicollinearity using rule-ofthumb for Variance Inflation Factor (VIF). i. (Gujarati. because if the stochastic error is non-normal the parameters are non-normal as well. up to ages 56-60. deciding whether the point estimate is significant or not. but there the data for these cohorts are rather sparse and renders the use of regression analysis unable.proponents would have included older cohorts in the study.1 Normality . the average hourly wages of sons is increasing across cohorts and then goes down again starting ages 46-50. Among them.e. generally. i.3. is not necessary if the problem is one The normality assumption. 2003) This assumption is especially paramount for statistical tests that are large-sample by nature which are necessary steps for inference.. Other aspects like homoscedasticity and bootstrapping will be discussed as well. But for daughters. The usual test for normality is the Jarque-Bera Test for 42 .3 Diagnostic Tests After obtaining estimates the classical diagnostic tests are done. a good proxy for experience.

(Gujarati. i. individually. severe multicollinearity can be “corrected” 43 . distribution is not leptokurtic or platykurtic. The rule-of-thumb is that when the VIF > 10. i. standard errors are higher than they could be. (Gujarati. This does not make the estimates biased or inconsistent but it makes the estimates more inefficient. Therefore the p-value of the JB statistic.Normality. The normality assumption is generally assumed to be the case when the number of observation is high by virtue of the Central Limit Theorem. a distribution is said to be normally distributed and the value of the JB statistic is equal to zero.2 Non-multicollinearity This phenomenon will always be present in any regression analysis. 2003) Stata 10 computes this per variable and averages them.e. especially in social sciences like economics. the variables have severe or near multicollinearity. 2003) 4..e. 2005) If these two hypotheses are simultaneously true. This is an asymptotic test. it requires large samples. are rampant. i. 2003) That is why one of the measures of the severity of multicollinearity is the Variance Inflation Factor (VIF) that measures the speed of the variance’s increase as the correlation between two variables increase. 2003) Like in the non-normality case.. (Gujarati.3. because interrelations among regressors or predictor variables. (Gujarati. Another rule-of-thumb is when there are a lot of insignificant variables. but the same are significant simultaneously. which follows a Chi-square distribution. which checks for the joint hypotheses that skewness is zero and kurtosis is three. (Stewart.e. should be high.

Although the parameter estimates may still be linear and unbiased. it is not best.4 Omitted Variables Test There are many forms of specification errors. the proponents will regress equations using White’s Correction Estimation in Stata 10.. which is epidemic in cross-section data. parameters and in drawing statistical inference. and thus confidence intervals. But this will not be done anymore. are already robust.e. the confidence interval is unnecessarily larger and the t-statistic smaller than what it might be if the estimates were efficient.3. the variance is not the lowest possible variance19. 1991. Thus. the estimates of their variances are biased. (Gujarati. since the variance is higher than what it could be using other estimators. Stata 10 has set the use of Breusch-Pagan-Godfrey (BPG) Test in the options for post-estimation tests.. affects the estimation of The presence of heteroscedasticity.3 Homoscedasticity . rather. 2003) 4. The one tackled here is more relevant because its consequences are more severe than the inclusion of irrelevant variables 19 Although the parameter estimates are unbiased. 2003) Two of the reasons for this phenomenon. (Goldberger. 1995 as cited in Gujarati. as cited in Gujarati.e. (Gujarati. 4. they are not efficient. standard errors. In other words. Furthermore. (Hendry.3. 2003) 44 .through an increase in the number of observations. i. i. are skewed distribution of regressors and incorrect functional form. 2003) In testing for homoscedasticity.

3. 2003) The latter is difficult to assert.5 Correcting the Bias The procedures that will be discussed here is a summary of the procedures in Bourguignon et al. (Gujarati. much like in a Hausman Specification Test. 4. 2003) But this test will not be done anymore since (1) the White’s Error correction disables the implementation of RESET in Stata 10.or incorrect measurement of dependent variable both of which has a consequence of inefficiency but still unbiased and consistent estimates. (Gujarati. etc. although with a different approach. (2007) as applied to this study. (Gujarati. (Mallucio. The general form of their model is given by: 45 . (2007). luck. e. et al. The extent of the bias will be computed as in Bourguignon. parents’ wealth. 1998) The commonly used procedure for testing omitted variables is the Ramsey’s Regression Specification Error Test (RESET).g. (2) this is to be expected given the model anyway. which checks for the significance of the correlation between the stochastic error term and the stochastic dependent variable. although measurement error contributes to the simultaneity bias. There are lots of circumstance variables that were omitted from the model because they are unobserved. 2003) An omitted variable or a measurement error in an independent variable makes the estimate biased and inconsistent.

Since the OLS estimates are biased. is the standard deviation of variable matter). The vector of bias term B. may where is the correlation coefficient between variable . It can be noticed that K. Then. Since the correlation coefficient is not readily available. Any set of correlation coefficients generated will be accepted only if the value of K computed out of it is less than 1. ~U(-1. i. The first 100 simulations that meet 46 . And may be computed thus. (2007) employed a Monte Carlo Experiment to generate values for correlation coefficients from a uniform distribution between -1 and 1. Bourguignon et al. not referring to the dimension but to the formula above. every correlation coefficient will be multiplied by the standard deviation of the observed values of the Xs. and and u. This will be done numerous times for every variable . be computed through: . should be less than 1. Their product is the Kx1 matrix underlined above.1).e.. is the standard deviation of u (or v for that We cannot compute because the predicted stochastic error was derived from biased estimates of coefficients.

Some aspects of the process need to be noted. The program for generating local i = 1 is as follows: while `i' <= 150 { set seed `i' gen set`i' = (-1+2*uniform())*stddev local i = `i' + 1 } 47 .e. Then Bourguignon et al. i.this criterion will be accepted. There are some cohorts that have no observations for some variables like male cohort ages 31-35 which has no observations for Father’s Occupation 10. the proponents removed the variable(s) from the regression and from the computation of the bias.e. For cases like this.. the Kx1 may matrix may have different dimensions per cohort because some cohorts did not use all variables as other cohorts did. using Stata 10. (2007) proceeded to construct a “90 percent confidence interval” by removing the top five and lowest five from the hundred generated correlation coefficients. i. In the generation of random numbers. Special Occupations. The program codes used to employ these same procedures in Stata 10 are included Appendix 3. it is necessary that the proponents use what the program calls seeds such that the same generations of random numbers may be replicated every time they are run for each cohort..

1 being the highest 20 For the other formulas. 4. this command also computes for relative mean deviation. The Gini actually has many formulations. 48 . the resulting 100 sets. coefficient of variation. they will be nx1 vectors not Kx1. Mehran Measure. the procedures to decompose the observed inequality as discussed in the empirical framework will be performed using the command inequal in Stata 10. (See Appendix 3) After computing for the unbiased estimates in this manner. please refer to Handbook of Income Distribution Vol 1. Theil’s Entropy and Theil’s Mean Log Deviation. so they will be extracted such that only the elements in the nx1 vector with will be retained.20 The formula used for the Gini Coefficient in Stata 10 is the one used by Corrado Gini in 1912: Where: n is the number of observations is the mean hourly wages is the rank of the wage. Aside from the Gini Coefficient. among other things.6 On Inequality Measures Used Some notes regarding the inequality measures used in this thesis is expedient.3. But since they were taken from the data editor. set`i’.The variable stddev is above and has to be manually inputted into the data editor of Stata 10. After the process above. and Kakwani Measure. will then be transformed into matrices (see Appendix 3).

Another well known family of inequality measures is Generalized Entropy (GE) class. but this is only formulation that is available in Stata 10. (Cowell. the entropy concept is the expected information in the distribution. aggregation consistency or full additive decomposability. it does not show. The idea began with Theil taking from the entropy concept in information theory21 and was applied in an analogous manner to income inequality measurement (Cowell. 2000) 49 . and also more weight is given to transfers affecting the middle class (Maasoumi as cited in Foldvary. however. There have been other variations of the Gini as an attempt to correct its shortcomings (See handbook of Income Inequality Vol. 1). Although the this formula for the Gini Coefficient can measure the extent of deviation of the distribution of income among individuals or households from a perfectly equal distribution (ILO. This has to be borne in mind in the interpretation of the Gini Coefficient later. 2000). 2008). Two members form this family is used in this thesis. 2007). Theil’s Mean Log Deviation (MLD) or GE(0) and Theil’s Entropy measure or GE(1) given by the formulae: 21 In a set of possible events whose probability of occurrence is inversely proportional to the value of information on whether or not that event will happen.is the hourly wage of an individual The Gini Coefficient ranges from zero to one. one being the most unequal.

2007) as being an arbitrary measure of inequality. 2005) The command ineqerr in Stata 10 will be used for this purpose. and income scale independence. as if it is a population in itself.7 Bootstrap Test for Counterfactual Inequality This method is essentially the same idea s Monte Carlo simulations. 22 The advantage of this method is that it makes exact distributional results and central limit theorems unnecessary for inference. (Stewart. 2005) 50 . For this reason. no bootstrapped standard errors will be computed for Theil’s Mean Log Deviation. it has many good qualities. the counterfactual stream of hourly wages.. Foster (198) has shown that Theil’s Entropy Index satisfies the following axioms of inequality measure: decomposability. the inequality of a smoothed distribution of income will be the same as a standardized distribution of the same income stream. (Stewart. 2005) The general procedure for this method is to take n random drawings from a sample. i.22 (Stewart. This command is set to repeat the computation of standard errors and confidence intervals a hundred times for three variables including Gini Coefficient and Theil’s Entropy Measure. symmetry. with replacement.3. principle of transfers. 4. The Theil’s MLD has been shown by Ferreira and Gignoux (2008) to be path-independent. then computing the statistic of interest – in this case.These indices. Although criticized by Sen (1972 as cited in Foldvary. range from zero to infinity. in this case.e. inequality indices – and doing it repeated number of times. except that it uses the empirical distribution of the data. in contrast to Gini Coefficient.

4197 ** * 0. and the (2) Gini.01 5 -7E04 -7E04 ** * 26 30 0.00 62 0.40 4 0. Therefore.619 1 0. 5.045 1 0. Wage Equations. It is important to note for the analysis that age is not one of the regressors unlike in the standard Mincerian specification because this is implicit in the cohort analysis.0119 1 36 40 0. (2007). Males. Robust OLS 1620 Average Parents' Education 0.36 9 0. This chapter is divided into two.00 63 ** * 31 -35 0.40 5 0.4071 8 ** * 0. OLS regressions are done treating individuals in each cohort as age-homogenous.36 2 0. 0.1 Regression Estimation Results In this section. as in Bourguignon et al.Chapter 5 Results and Discussion This section presents the empirical results of the study after applying the methodology discussed in the preceding chapter.01 9 0.022 3 0.01 49 0. Theil’s Mean Log Deviation. Table 1. (1) the regression estimation results.629 1 ** * 21 25 0. estimation results or the effects of the observed variables on inequality are reported.0125 5 0.388 8 0.022 3 Difference of Parents' Educ.0033 4 0.035 3 0. and Theil’s Entropy Index decomposition analysis.0037 8 0.033 2 Ilocos Region ** * ** * * 51 .044 3 0.382 4 0.01 92 0.004 0.004 Region 0.

7193 6 0.6043 3 0.453 3 0.4800 7 0.13 2 0.611 7 0.105 2 1.51 3 ** * -0.72 1 0.159 5 1.49 5 0.7289 1 0.157 1 1.54 9 -0.434 0.45 8 -0.4002 8 0.507 0.462 1 0.54 1 0.61 8 0.141 1 1.512 1 1.882 2 0.47 6 0.190 3 1.626 9 0.2638 6 0.617 6 0.880 4 0.46 0.6109 6 0.14 ** * ** 0.49 7 0.56 6 0.538 1 1.160 4 1.51 1 0.455 9 0.6824 5 0.727 6 0.48 9 0.7604 7 0.4039 0.55 0.51 1 -0.55 7 0.265 8 1.171 8 1.621 0.208 8 0.4880 7 0.459 1 0.35 4 0.579 4 0.511 1 0.55 8 -0.436 3 1.49 8 0.48 4 0.25 0.54 1 0.731 1.266 4 1.73 0.2904 ** * ** 1.56 6 0.54 2 0.Cagayan Valley Central Luzon Bicol Region 0.6027 7 0.518 5 0.512 8 0.57 0.676 2 0.109 *** ** ** * ** * ** ** ** * ** * ** * ** * *** Central Visayas ** * ** * ** * ** *** Eastern Visayas ** * ** * ** * ** * Western Mindanao ** * ** * ** * ** * *** Northern Mindanao ** * ** * ** * * *** Southern Mindanao ** * ** * ** * ** * *** Central Mindanao ** * ** * ** * ** * *** CAR 52 .2568 7 0.605 8 0.56 6 -0.53 2 0.174 3 1.2907 7 0.6116 6 0.200 6 0.7766 1 0.233 ** * 0.52 0.61 8 -0.34 8 0.25 0.25 ** * ** * ** * Western Visayas -0.12 4 0.681 8 0.2726 5 0.2609 8 0.583 9 0.2950 1 0.6968 4 0.55 1 0.61 7 0.55 0.345 7 0.624 2 0.71 5 0.61 6 0.350 5 0.73 1 -0.

633 2 0.0130 1 0.01 91 0.56 8 ** * * ** * 4 0.08 6 0.32 9 0.02 22 0. Sales Workers Agriculture 0.455 5 0.1376 1 0.17 58 0.08 6 0.2585 9 0.10 43 0.06 39 0.42 7 0.1457 4 0.2006 2 0.11 8 0.123 6 0.2657 6 0.045 4 1.359 8 ** * ** * ** * ** * ** * 0.668 7 0.11 8 0.136 2 0.0276 9 0.856 4 1.050 ** * * 0.390 1 0.0650 Government and Managers Professionals Associate Professionals Clerks 53 .016 4 0.012 9 1.43 4 -0.019 2 0.030 4 0.098 0.090 3 0.53 8 0.082 8 0.ARMM Caraga CALABARZON MIMAROPA 0.14 3 0.042 6 1.31 2 0.26 4 0.141 7 0.282 4 0.839 4 0.07 32 0.1650 9 *** Father's Occupation 0.32 8 0.668 6 0.121 2 0.25 5 0.950 3 0.3379 0.3139 0.238 7 0.17 54 0.755 1 0.2982 6 0.07 37 0.53 6 0.21 6 0.116 *** *** *** ** * * ** * *** ** * ** * 0.783 9 ** 0.15 43 0.278 8 0.11 7 0.3194 3 0.1956 9 0.449 3 0.55 9 0.238 5 0.641 2 0.14 2 0.11 0.079 0.30 4 0.3458 7 0.24 8 0.04 ** * 0.2013 0.233 3 0.911 4 0.1745 8 0.097 0.084 1 Service.06 29 0. market.099 8 0.48 1 ** ** * ** * 5 0.22 2 0.2171 0.13 7 0.48 1 0.1948 4 ** 0.353 4 0.15 37 0.371 2 0.1577 7 3 1.02 65 0.10 41 0.

00 00 3.81 54 .022 9 0.0689 9 0.41 52 0.003 3 0.37 95 0. and Assemblers Special Occupations 6 0.1508 3 0.03 5 0.14 61 0.541 8 0.0144 4 0.00 53 0.97 88 0.003 7 * Machine Oper.0000 0.22 4 0.00 62 0.921 7 0.03 5 0.666 8 0.078 7 0.Trades and related workers 5 0.028 9 0.535 5 Schooling * ** * ** * ** * Schooling Squared Labor Market Status -0.04 96 4 0.000 0 3.680 8 0.020 7 0.050 4 0.027 0.66 10 3.04 8 0.14 3 0.001 3 0.0221 9 4 0.71 76 0.547 4 2.00 00 0.04 4 0.97 28 ** * 0.46 636 0.02 52 0.00 53 ** * 0.09 97 0.37 69 2.51 31 0.04 6 0.728 4 ** Schooling 0.023 1 0.02 9 0.051 4 0.028 9 0.459 0 0.22 7 0.128 6 0.60 18 ** ** * ** * 0.43 16 0.71 77 2.39 243 0.04 4 0.03 1474 0.00 00 0.03 3 0.1591 2 0.0239 2 0.072 3 0. of Obs Area of F-Stat R-squared JB Test VIF 1463 0.4023 7 ** * * Government Employee ** ** * Constant 3.10 04 0.0408 4 0.018 4 0.05 73 0.000 0 0.51 37 0.05 0.003 8 0.1676 3 0.051 8 0.02 62 0.003 5 0.0444 9 0.003 7 0.520 1 0.02 22 0.4840 3.014 9 ** * ** * 0.0483 4 0.991 0 3.00 61 ** ** * Private Establishment 0.0667 9 3.5756 0.1578 4 0.899 7 *** No.0143 9 0.

407 9 - ** * ** * ** * ** * * ** * ** ** * * ** * ** * * ** ** * ** * ** * ** * ** * ** * ** * ** * ** ** * Western Mindanao ** ** * 55 .9386 4 0.7630 3 -0.5978 7 0.4742 5 0.005 6 0.0491 2 0.020 9 0.290 9 0.0766 9 0.3012 1 0.608 2 0.366 0.296 3 0.495 8 0.007 0.2552 4 0.7495 5 0.004 9 Region 0.0661 5 0.126 8 0.0988 4 0.0915 7 ** * Difference of Parents' Educ.336 8 0.0381 9 0.629 4 0.398 3 0.691 4 0.267 4 0.8792 5 0.529 0.284 5 0. Wage Equations.625 7 0.281 4 -0.5549 4 0.039 7 0.363 8 0.0055 4 0.005 8 0.391 5 0.7453 6 0.610 2 0.406 1 0.9538 4 0.2128 8 -0.294 0.020 9 0.341 8 0.019 0.481 8 0.526 6 -0.020 65 0.0072 5 0.360 5 0.518 9 0.474 3 0.5422 8 0.488 0.635 1 0.484 3 -0.556 8 0.005 2 0.0071 4 36 40 0.3975 6 0.5811 1 0.7114 7 0.258 0.556 7 0.Table 2.2872 6 0.8656 7 0.7592 2 0.587 9 0.375 4 0.621 1 0.3110 7 21 25 0.6582 6 0.0044 5 0.409 6 0.5899 1 0.039 5 0.579 9 0.290 7 0. Robust OLS Average Parents' Education 1620 0.127 1 0.3554 1 0.3044 5 0.502 1 0. ** Ilocos Region ** * Cagayan Valley ** * Central Luzon ** * Bicol Region ** * Western Visayas ** * Central Visayas ** * Eastern Visayas -0.005 6 26 – 30 0.413 0.4207 3 0.487 5 0.524 8 0.471 0.264 6 0. Females.005 9 31 -35 0.008 ** * 0.

201 75 0.425 3 0.374 1 0.175 1 0.113 7 0.8448 1 * 1.123 6 - 0.447 5 0.260 1 0.510 4 0.377 3 0.279 3 0.7865 2 0.4225 7 0.7239 1 0.103 0.344 32 0.7314 Government and Managers Professionals ** 56 .5990 8 0.5666 0.3172 0.437 8 0.7295 8 1.193 5 0.199 95 0.2458 5 0.517 8 0.003 9 0.155 39 0.531 4 0.4811 1 0.Northern Mindanao Southern Mindanao Central Mindanao CAR ARMM Caraga CALABARZON MIMAROPA 0.2637 4 ** * ** * 1.440 8 -0.1374 6 0.486 8 0.8387 7 1.510 5 0.514 3 0.0257 3 - 0.684 7 0.3529 5 ** * ** * ** ** * * ** * ** * ** * Father's Occupation 0.536 8 0.2505 0.389 1 0.440 4 0.425 0.283 8 0.631 8 0.1749 5 0.6070 2 0.453 9 0.294 1 0.583 7 0.1108 2 1.2244 7 0.262 4 0.345 ** * 0.411 4 -0.1902 4 1.7430 1 0.261 7 0.508 7 0.110 6 0.615 4 * * ** * ** * ** * ** * ** * * ** ** * ** ** 0.6039 4 0.4828 8 0.485 3 * ** * ** * 07 0.441 1 0.411 5 0.6352 6 0.502 5 0.3863 5 ** 0.2062 3 ** * 0.150 2 0.5642 4 0.175 3 0.7131 2 0.102 2 -0.43 -0.7304 5 0.6222 0.1291 1 0.187 4 0.485 8 0.288 1 0.573 8 0.481 3 0.2350 3 0.3323 7 0.443 7 0.4345 0.422 8 0.5555 8 0.453 6 0.3213 1 0.42 0.269 1 0.399 6 0.

049 3 0.071 Trades and related workers 0.12 0.1908 3 0.4276 7 * 0.031 64 0.3720 2 0.018 5 0.061 8 Special Occupations Schooling 0.0071 5 0. Sales Workers 0.049 49 0.3286 7 0.0.125 47 0.3814 8 0.932 89 ** * 0.4685 0.122 4 Associate Professionals 0.103 04 0.020 7 Machine Oper.504 7 0.103 98 0.022 47 0.1250 1 0.028 5 0.4120 7 0.078 1 0.118 4 0.0524 1 0.559 9 ** * 0.3831 2 0.007 26 0.2976 9 0.156 2 0.079 3 0.121 34 ** 0.001 8 0. market.5594 6 Agriculture * 0.0035 5 0.0122 5 0.176 89 0.0551 4 0.128 88 0.013 7 0.009 69 0.051 46 0.024 17 * Schooling ** * ** * Schooling Squared Labor Market Status Private Establishment Government Employee -0.1735 4 0.653 94 0.3239 1 4 0.2998 6 0.505 5 0.116 33 0.155 9 0.006 6 0.08 0.9858 9 0.105 33 0.068 1 0.2087 6 0.655 1 0.1665 0.004 2 0.756 4 0.1474 9 0.2461 7 * 0.3709 5 0.4824 9 0.9212 1 Service.2543 4 0.507 83 0.747 1 Clerks -0.021 5 0.062 6 0.001 8 8 0.023 94 0.1977 1 0.273 7 0.011 69 0.1583 3 0.219 13 0.063 2 0.002 98 0.0904 8 0.2059 1 ** * 0. and Assemblers 0.218 33 0.166 87 0.8247 6 57 .3760 1 0.005 4 0.011 4 0.051 23 0.0801 7 0.268 01 0.0109 9 0.011 69 * 0.0033 7 0.102 89 0.003 9 0.009 63 0.035 0.

the coefficients of the circumstance variables shall be interpreted as partial effects because there is still an indirect effect through the effort variables. respectively. the coefficient showed fluctuating values for males unlike what Bourguignon et al.2174 1 2.491 4 0.7425 0. The results above include both the circumstances and efforts variable. The significance of each biased estimate is given by the asterisk. The complete effects can be measured as the coefficients of the reduced form equations.1830 6.1 Average Parents’ Education For this variable. The expected positive effect in the results is consistent with the expectations except for 58 .1.8583 1 *** No.227 8 ** ** * 0.0.308 9 0.5370 4. however. the influence of Mean Parents’ Education (MPE) is decreasing with age but increased.815 81 ** * ** * 0.520 25 2. 5.8660 6 ** * 0.235 0 4.00 136 0.5624 0.564 4 Constant 2.0000 0.629 45 ** * ** * 0.07 53 0.22 867 0.02 334 0. Therefore. its effect to hourly wages is generally positive for both males and females.997 2. (2007) found out in Brazil.012 0 3. the unbiased estimates will be used.511 5 0.930 93 2. For our analysis. For females. below and above each cell.000 0 0. of Obs Area of F-Stat R-squared JB Test VIF 673 0.549 0 4. These results are seen in Appendix 3.83 Tables 1 and 2 above show the biased and unbiased mean estimates of the earnings equation. However.

is approximately the same as β. e.5% for males and 2. In other words. It can be gleaned from the tables above that females have generally larger coefficients than males.. 59 ..021. the structural form coefficients are 0. ages 31-35. MPE plays larger role for females than males.24 For the reduced form equations.g. looking at the same cohorts.1% for females.e. the indirect effect (through efforts) are not large. This age cohort is also where the marginal effect for females is the lowest. This shows us that for ages 21 – 25. parents’ education did not affect their children’s own education for those in Cohort 2. elementary undergraduates are given 2. the child’s wages increases by 1.5 years of schooling ((Grade 5.one male cohort.0149 and 0. i.grade 1)/2).e. both males and females.30% and 6. But since there are no other available data. the coefficients are a bit lower for the complete variables equations (Tables 1 and 2) than the reduced form equation (Appendix 3) due to the decomposition of the direct and indirect effect of the variable. respectively. Therefore. Not surprisingly. In other 23 Take note. albeit still positive. 24 This growth rate is compounded continuously. exp(β) – 1.9% for males and females. will increase the basic pay per day by 4. Although this is the case. A study regarding returns to schooling by Mallucio (2000) treated parents’ education as a regressor in a schooling equation and not in the wage equation. that the measurement of education was calculated by means of averaging the intervals in each category in the survey. respectively. it can be shown that the discrete growth rate in hourly wages per (infinitesimally small) unit increase in X. i. Example would be for males and females ages 21 to 25. this is deemed to be the best approximation. the results may have measurement error bias which will remain even for large samples because the bias is inconsistent. a one-year increase in MPE. however. This means that for every one year increase in the mean education of parents23.

However. Their study shows that there are small but significant indirect effects of parental education to the wages through own schooling of the individual.2 Difference of Parents’ Education This variable was intended. 5. to measure any asymmetry in the role of the father and mother. The same trend is shown for the reduced form equation although the coefficients are higher. shows that both parents’ education have similar effects to the schooling of the child. (2007).. But a study made by Schady (2000) showed that the effects of father’s education to log wages of sons is higher than those of the mother’s by 0. the effects are positive. after controlling for value of house and ownership 60 . But the study of Mallucio (2000) where he used separate education of parents as regressors in a schooling equation for Bicol residents only. father’s education increases hourly wages by 1.1. for him.e. because of the indirect effect of this that goes through the effort. there is no direct effect of parents’ education to the wages. The results from the estimation are the same as with Bourguignon et al. (2007) in Brazil which did not also show any systematic asymmetry between the roles of the education of the two parents. i. The coefficients of this variable did not show any systematic trend. For some cohorts. however.012. meaning. wage is affected by parents’ education only through the individual’s own schooling. as in Bourguignon et al.words. again.2% higher than the increase due to the mother’s education.

Magnitudes increase going up to -1. for males.26 The largest (negative) differential turns to Western Visayas and Central Mindanao for males as they grow older. the trend is there are higher differential hourly wages per region for females than males. differential intercepts in a log-linear model is can only be interpreted as continuously compounded growth rate because the discrete growth rate. 25 After controlling for land ownership and value of the house. Western Mindanao has the largest (negative) differential intercept at -0. but the highest is in Caraga for 36-40 year-old females with as high as -1. (Stewart. Western Visayas also have very high differentials. 26 Unlike the coefficients of continuous variables. 2005) 61 . this is a biased computation of discrete growth rate (Halvorsen and Palmquist.69. is not approximately equal to β. Again. respectively.167 additional years of schooling. exp(β) – 1. It can be seen that the differential intercepts of the various regions are generally negative.of agricultural lands.25 5. the mother’s education has a (statistically significantly) higher marginal effect to the child’s schooling and thus to their wages. whereas for females. as cited in Stewart.3 Regions For this dummy variable. This is consistent with the a priori expectation that hourly wages in the capital region is higher than its counterparts.51 for those 36-40 year-old males in Central Mindanao. Looking at Cohort 1 (Ages 16 – 20). Mallucio (2000) shows the marginal effect of father’s education and mother’s education to the child’s education is 0. 1980. 2005) Furthermore. This implies that the hourly wages in the all other regions are lower to that of NCR and for most of the cohorts.85. Northern Mindanao has the largest (negative) differential intercept at -0. the base region is National Capital Region (NCR).252 and 0. For females.1.68.

1.1. After analyzing the results for the circumstance variables. but for the former circumstance variable. however. Mean parental schooling and father’s occupation gives somehow a picture of intergenerational mobility as indicated by the coefficients. For males ages 36 – 40. the highest differential intercept is in Central Mindanao with as high as -1. the base occupation used for the estimation is unskilled workers and laborers.63. They approximate the extent of the parents’ qualities’ influence over the children’s wages. The results show. 5. whereas for the latter circumstance dummies. that the influence (coefficient) of the father’s occupation to the children’s wages is stronger for males than for females. The results show fluctuating values and signs for both males and females across cohorts and types of father’s occupation. the females have a larger coefficient. For females. the paper will proceed in the analysis of the effort variables in the reduced form equation.The same trend is shown for the reduced form equation although the coefficients are higher because of the indirect effect of this variable that goes through the effort. 5. males have larger coefficients.5 Schooling 62 .45. For both variables there is no general trend that can be seen across cohorts. the highest is also in Central Mindanao (Ages 36-40) at -1.4 Father’s Occupation Using dummy variables.

And their result demonstrated increasing at a decreasing rate effect of schooling to log wages. 63 . and tertiary education. as cited in Mallucio (2000). while controlling for provincial dummies and parental education. spouse’ education has the effect of decreasing the returns to schooling. especially in college/university graduates. find that including parents’ education. secondary. Schady (2000) employed spline functions to estimate log wages to schooling. Lam and Schoeni (1993). we do not perform the second-stage of the 2SLS anymore due to the problem of identity. In this paper. But Mallucio (1998) was able to utilize 2SLS and compare his results to a simple OLS estimation. meaning those with credentials (in this case. What this paper did was an attempt to measure the extent of the bias. and find that treating the schooling variable endogenous increases the returns to schooling as measured by the coefficient of schooling in a Log-Lin Wage Equation even after including health variables and correcting for selection bias. meaning. although we treated schooling as endogenous. there is significant convexity in the effects of schooling to log wages.Using 1998 APIS data. a diploma) is given higher wages. increasing at an increasing rate. His results show that in the Philippines. This is what is known as “sheepskin effects”. 1998) shows separate results for returns to schooling in primary. However. as in Bourguignon et al. (2007). Interestingly also. Schady (2000) graduate students are disproportionately rewarded in terms of higher hourly wages. an earlier study by Hossain and Psacharopolous (1994) (as cited by Mullacio.

taking the first derivative of the wage equations for males and females ages 16 – 20.The results of the estimations with regard to schooling variables in this paper are surprisingly counterintuitive. Although. since the objective of this paper is to simulate counterfactual wage streams keeping circumstances unchanged. additional years of schooling bring about higher returns at increasing rates.0036 S and -0. this results shows that both categories have positive differential effects on earnings. the returns to education.6 Labor Market Status With private household as the base dummy variable. respectively. There are other variables like costs to education that should be taken into consideration in really measuring the returns to education.1. notwithstanding this apparent perplexity. Moreover.e.0074 S.167 years and 4 years of schooling for males and females respectively. . However. 5. will become positive. The results of the estimations with regard to schooling variables in this paper seem counterintuitive because the coefficients suggest decreasing at an increasing rate. i.0289 + 0. the estimates are still useful for the purposes of this thesis. These numbers suggest that the return to education is negative at very low years of schooling. these results are consistent with the previous studies mentioned. To illustrate. but reaches a minimum and starts to increase at 1.0042 + 0. the coefficients 64 . one gets -0. those presented here are not meant to directly address the question of returns to education and should not be overly relied upon. Thereafter. But at some point of schooling.

Theil’s Entropy and Theil’s Mean Log Deviation.for employees of the government sector are significantly higher than that of the private establishments. Subscript I denotes a Gini Coefficient. or Theil’s Mean Log Deviation. quality of care received in early childhood. the indirect effect . Figure 2 shows the decomposition for males. The decomposition was made into three components namely the direct effect. Theil’s Entropy. whereas Figure 3 for females. wage inequality was decomposed for each cohort using three indices namely the Gini Index.2 Decomposition Analysis This section shows the decomposition of the inequality measurement into direct effect . and the residual effect. the indirect effect. 5. Again. genetics) that are not observed due to lack of data. The direct effect shows the extent from which circumstances affect earnings inequality directly. This is consistent with a study in the Philippines that those in the public sector earn higher than that of the private sector. The residual also accounts for the observed and unobserved efforts exerted by the individual not captured through the circumstances. Using the simulations of the counterfactual distribution. female hourly wage differential effect of labor market status is generally higher than those of the males. and the residual effect. The indirect effect shows the effect of circumstances to earnings inequality 65 . The residual comprises of other factors that affect inequality (such as parents’ wealth.

The residual captures the effect of unobserved circumstances and efforts which were not included in the model plus all other factors like sheer luck.40 Ag Cohorts e Figure 2.35 36 .35 36 . Figure 2: Inequality Indices Decomposition – Males Gini Decom position (Males) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Indirect Direct Residual 16 .A Theil's Entropy Decomposition (Males) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Indirect Direct Residual 16 .30 31 .B 66 .20 21 -25 26 .20 21 -25 26 .40 Age Cohorts Figure 2.30 31 .indirectly through the effort variables used in the model.

41% 36 40 63.78% 31 .36 % 100% 36 40 35.81% 28.67% 100% Average 64.54% 9.14% 28.60% 5.23% 17.00% 0.98% 100% 16 .03% 100% Average 63.48% 100% 16 .60% 10.43% 4.35 36 .23% 0.73% 15.20 86.19 % 50.88 % 11.98% 25.50% 16.20 82.94% 5.78 % 45.76 % 24.20 88.57% 20.97% 15.63% 100% 31 .59 Average 78.77% 26 – 30 83.03% 8.20 21 -25 26 .35 76.10 % 100% 36 40 39.21% 100% 21 -25 68.76% 21 -25 80.16% 7.94% 27.29% 3.03% 8.63 % 14.86% 100% 31 .08% 100% 21 -25 66.70% 0.MeanL D Decomposition (Males) og ev 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Indirect Direct Residual 16 .92% 16.35% 100% 26 – 30 70.91% 28.C Table 3: Inequality Indices Decomposition Results – Male Gini Residual Direct Indirect Total Theil’s Entropy Residual Direct Indirect Total Theil’s Mean Log Deviation Residual Direct Indirect 16 .44% 11.81% 10.82% 29.35 60.98% 5.30 31 .42% 100% 26 – 30 72.65% 8.40 Ag Cohorts e Figure 2.35 60.79% 12.71 % 14.06% 67 .72% 10.

the Gini Coefficient is used as a point of discussion. on average. Stated differently. gradually over time. The remaining 4% is attributed to the effect of circumstances through the effort variables. 68 . In the Gini decomposition. Further. A noteworthy trend that can be seen in the figure is the decreasing share of the residual effect from the younger to the older cohorts.% Total 100% 100% 100% 100% 100% 100% For illustration purposes. about 16% is attributed to the direct effect of circumstances to the Gini decomposition. it rose from about 11% to around 35% in the oldest cohort. Aside. The results imply that as individuals transfer to older cohorts. the effect of circumstances directly to total inequality is much more seen. Yet. This could show that the circumstances have a minute effect through the efforts of the individual. It would also be looked upon that the indirect effect is insignificant to total inequality in any of the cohorts. the direct and indirect effect of circumstances to total inequality rises. the other indices produced also exhibited the same outcomes with regard to the trends across cohorts with subtle differences on magnitude. about 80% of the composition of the Gini decomposition is attributed to unobserved circumstances and efforts. the impact of region of residence and parent’s education to individuals is much more reflected in total inequality as one transfers to the older cohorts. For males.

In the middle cohort. This may imply that earnings inequality during the middle years is affected by other unobserved circumstances not present in the model. the residual effect is greatest in the middle cohorts and less in the youngest and oldest cohort. It could be noted that the trend present for males cannot be observed for females. the corresponding decomposition could be seen in Figure 3. the effect of unobserved circumstances and efforts is greater. For females. Figure 3: Inequality Indices Decomposition – Female 69 .For females. The results imply that the impact of region of residence and parent’s education is far more felt in the youngest and oldest cohort.

A Theil's Entropy Decomposition (Female) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Indirect Direct Residual 16-20 21-25 26-30 31-35 36-40 Age Cohorts Figure 3.B 70 .Gini Decomposition (Female) 100% 80% 60% 40% 20% 0% 16-20 21-25 26-30 31-35 36-40 Indirect Direct Residual Ag Cohorts e Figure 3.

02% 5.69% 8.58 % 31.87% 100% 16 20 68.15 % 6.55% 20.09 % 3.05% 18.100% 80% 60% 40% 20% 0% MeanL D D og ev ecom position (F emale) Indirect Direct Residual 16-20 21-25 26-30 Ag Cohorts e 31-35 36-40 Figure 3.16% 100% 26 30 91.32 % 100% Averag e 87.56% 100% 31 35 90.73% 15.85 % 2.32 % 6.82 % 37.86 % 12.96% 100% 26 30 94.40% 100% 36 40 49.51 % 7.38 % 8.58% 14.03% 8.86% 100% 16 20 58.55% 100% 21 -25 76.65 % 3.94% 100% 36 40 60.03 % 8.93% 100% Averag e 70.76% 100% 71 .68 % 1.05 % 15.18% 2.00% 1.29 % 11.95% 0.27 % 100% 31 35 75.74% 7.09 % 1.04% 100% 21 -25 90.74 % 16.16 % 2.02 % 8.55% 100% 26 30 82.Female Gini Residual Direct Indirect Total Theil's Entropy Residual Direct Indirect Total Theil’s Mean Log Deviation Residual Direct Indirect Total 16 20 83.58% 100% 31 35 83.70 % 3.42 % 17.60 % 10.43 % 37.62 % 5.87 % 28.90 % 100% 36 40 76.C Table 4: Inequality Indices Decomposition Results .97% 100% 21 -25 86.87% 4.10% 100% Averag e 76.

It could be noted that in the youngest and oldest cohorts. Figure 4: Equalizing “Circumstances” . 5.1 Equalizing “Circumstances” This section shows the results upon equalizing the effect of circumstances to total earnings inequality. The partially-equalized line displays the effect upon equalizing the direct effect of observed circumstances namely region of residence and parent’s education. about 17-20% of total earnings inequality could be attributed to circumstances compared to that of the middle cohorts which exhibited only around 5-10%. a large percentage of about 87% is attributed to the effect of the residual unobserved circumstances and efforts to earnings inequality. The other 13% is attributed to the effect of circumstances from which about 9% is direct and the other 4% is indirect through the effort variables. The completely equalized line correspond to the resulting inequality index upon equalizing both the direct and indirect effects of circumstances to total earnings inequality.2.On average.Male 72 .

3000 0.3000 0.0500 0.0000 16-20 21-25 26-30 31-35 36-40 Com tely-equalized ple TE Partially-equalized TE Actual Theil's Entropy Figure 4.2000 0.Gini Coefficients.A T e E trop .3500 0.4000 0.B 73 .5000 0.1000 0.1000 0. Ma s h il's n y le 0.2500 0.1500 0.4000 0. Male 0.2000 0.0000 16-20 21-25 26-30 31-35 36-40 Actual Gini Partiallyequalized Gini Com pletelyequalized Gini Ag Cohort e Figure 4.

0013 0.19383919 0.0007 0.0004 0.17018933 -0.0074 21-25 0.0009 0.0068 0.33038567 -0.0003 0.0105 16-20 0.1000 0.0025 0.27996641 -0.0086 0.36371733 -0.0202 36-40 0.26741127 0.0064 0.2500 0.30856789 -0.27756674 -0.37202415 -0.29555696 -0.0244 36-40 0.28043525 -0.0125 0.0021 0.Theil's Mean LogDeviation.C Table 5: Equalizing “Circumstances” – Males Males Actual Gini Bias Std.0035 0.0231 0.33199910 0.1500 0.0452 0.0009 0.30964507 -0. Males 0.0019 0.26886439 -0.3500 0.0009 0.0008 0.0893 Completelyequalized Gini Males Actual Theil's Entropy 74 .0016 0.0162 0.0226 0.17227879 -0.43982907 -0.24925898 -0.25919878 0.0165 21-25 0.0126 0.0000 16-20 21-25 26-30 31-35 36-40 Actual Theil's mean Log Deviation Partially-equalized Theil's TMLD Completely-equalized TMLD Figure 4.0167 31-35 0.0045 0.0180 0.3000 0.22848332 -0.0200 31-35 0.0500 0.0108 0.2000 0.0084 0.0109 26-30 0.0147 26-30 0.0108 0.30109579 -0. Error Partially-equalized Gini 16-20 0.0097 0.0001 0.0002 0.

14135219 0. thus giving them the ability to have a “regular pay increase” though this might not be applicable for those people not part of the formal sector.0002 0.15516316 0.0193 0.0240 31-35 0.0271 36-40 0.21684022 0.0007 0.0107 21-25 0.16142063 -0.0247 0.10689238 0.18337588 -0.0042 0.15121185 0.0114 26-30 0.0013 0.0002 0.31817536 0.14650845 0.12460576 0.Partially-equalized TE 0.12604935 -0.11452413 0.13030266 0.13897357 -0.0026 0.0136 0.12345823 0.11740304 -0.0100 0.0159 16-20 0.0171 0.0059 0. This could be characterized by the longevity of males into the workforce (compared to the females).13092728 -0. It can be observed that as one move from a younger cohort to an older cohort.17299710 0.13041616 0.16098767 -0.0036 0.16000638 0. Figure 5: Equalizing “Circumstances” – Female 75 .14951713 -0.18463487 0.0025 0.0017 0.15013552 0.12657836 Completelyequalized TE Males Actual Theil's mean Log Deviation Partially-equalized Theil's TMLD Completelyequalized TMLD Figure 4 shows the partially and completely equalized indices for males. the earnings inequality constantly increases.

5000 0.2000 0.1 00 0 5 .A T e E t o y F m le h il's n r p .2 00 0 5 .0 00 0 0 .0 00 1 -2 6 0 2 -2 1 5 2 -3 6 0 3 -3 1 5 36 -40 C p te -e u e om le ly q aliz d T E Partially qu e T -e aliz d E A al T il's E trop ctu he n y Figure 5.4 00 0 5 .3 00 0 0 .0000 16-20 21-25 26-30 31-35 36-40 Actual Gini Partiallyequalized Gini Completelyequalized Gini Ag Cohorts e Figure 5. e a s 0 0 .4000 0.3 00 0 5 .1 00 0 0 .1000 0.2 00 0 0 .Gini Coefficients.B 76 . F ale em 0.3000 0.

0500 0. F ales em 0.3500 0.C Table 6: Equalizing “Circumstances”– Female 77 .1500 0.0000 16-20 21-25 26-30 31-35 36-40 Actual Theil's Mean Log Deviation Partially-equalized Theil's TMLD Com pletely-equalized TMLD Figure 5.3000 0.4000 0.Theil'sMean L D og eviation.2500 0.2000 0.1000 0.

0104 0.18389169 0.20287428 -0.0033 0.18773566 0.22038641 -0.0111 0.0267 0.0147 21-25 0.40891371 -0.20671460 0.0194 0.0164 26-30 0.0339 0.0029 0.34095908 -0.0027 0.17059008 26-30 0.0165 31-35 0.21126556 0.32736665 -0.0200 0.0346 36-40 0.0007 0.0061 0.32311577 0.38076721 0. It is also noted that the differ78 .0175 0.0002 0.0147 16-20 0.22033049 -0.0279 0.30209747 -0.33315762 -0.0110 21-25 0.35015722 -0.31938981 0.0032 0.28234893 0.0002 0.0085 0.0020 0.0027 0.0154 0.3717759 -0.0876 0.17400402 0.0022 0.36977501 -0.0001 0.23661448 0.0008 0.19020079 Completelyequalized Gini Females Actual Theil's Entropy Partiallyequalized TE Completelyequalized TE Females Actual Theil's Mean Log Deviation Partiallyequalized Theil's TMLD Completelyequalized TMLD Compared to its male counterparts.0234 26-30 0.0006 0.20569153 0.0163 0.22321528 0.0001 0.18429008 0. Error Partiallyequalized Gini 16-20 0.0428 0.33960634 0.0044 0.0019 0.14852151 0.44429765 -0.0025 0.17860587 -0.0131 0.0033 0.0022 0.19566658 31-35 0.34721816 -0.15504017 36-40 0.0004 0.0159 0.23036663 -0.36167254 -0.0013 0.34233668 -0.19349523 -0. the female inequality indices fashioned a convex curve resulting to the youngest and the oldest cohorts having higher inequality compared to those cohorts that are in between them.35120936 0.0286 0.20302810 0.17901059 -0.31619155 -0.0024 0.0278 16-20 0.0184 0.21605078 -0.Females Actual Gini Bias Std.23778577 0.0041 0.0022 0.0011 0.0242 0.20166879 0.0077 0.19444155 21-25 0.0098 0.0150 0.0164 31-35 0.0320 36-40 0.0130 0.0046 0.0003 0.

there is a decline in the skills of women while they are not in the labor force. the fluctuations in the inequality indices of the female population could be attributed to the intermittency in the female labor force participation. As mentioned in the paper. Some employers 79 . Secondly. According to Jacobsen and Levin (1995). wages of women who leave and then return the labor force experience lower wages compared to those women who didn’t engage in intermittent activity. This result on the inequality measures for women could possibly be attributed to labor force intermittency. Finally. The dormant movement from the 21-25 to 31-35 cohorts could be traced to the repetitive entry and exit of the female population due to family reasons and responsibilities such as giving birth and taking care of growing children. This results to lower wages upon their return compared to those women continuously involved in the labor force.ence between the partially and completely equalized indices and the actual inequality indices is small. As we could see in Figure 5 the inequality indices for female vary and have not produced a pattern. employers may view gaps in work history as an indication that women may leave again. According to the literature. Stated differently. one reason is that seniority which is often associated with higher wages is not build up for women who undergo intermittency. This lag on wages can be attributed to various reasons. labor intermittency is more dominant among women due to different roles they play in society.

in cohort ages 36-40) which leads to higher inequality in that certain cohort. On average. hire them for less important. lower paying jobs to limit the impact of a future leave. (Jacobsen and Levin.g. It can be observed that the region of residence has the biggest impact to actual inequality. The next variables with the highest impact is mean parental education with around 1-2% effect on the total Gini index except for the oldest cohort. and region of residence are individually analyzed to distinguish its effect to actual earnings inequality holding other things constant. the effect of mean parental education. father’s occupation affects total male Gini the least with a share ranging only about 1%. As shown. 80 . 1995) The overall selectivity-corrected wage differential between continuous and intermittent workers is roughly 16 percent. Figure 6 shows the individual equalization process for males. it contributes to about 5% to the total Gini index. Lastly.2 Equalizing Individual Circumstances To know the individual effects of the circumstances to the actual inequality indices. when the region variable is equalized.would. (Hotchkiss and Pitts. therefore. 2005) This wage differential increase the variance among women’s earnings in some cohorts (e. a further individual equalization process is followed. Specifically. it results to the lowest inequality index. 5. father’s occupation.2.

0086 0.0180 0.0005 0.290164 71 0.0003 0.301095 79 -0.30 0.278777 87 -0.0000 16 .331922 68 -0. Male 0.284984 27 -0.0004 0.0240 0.25 0.4000 0.358317 56 -0.0010 0.303705 62 -0.350855 64 -0.0144 0.0116 0.331999 10 0.0071 0.0125 0.0029 0.439829 07 -0.20 21 .3000 0.0098 0.5000 0.315827 82 -0.40 Father's Occupation Actual Gini Mean Parents' Education Region Table 7: Equalizing Individual Circumstances – Male Males Actual Gini Bias Std.0003 0.296017 48 -0.0048 0.352906 76 0.0158 36 .0110 21 .0009 0.0003 0.363717 33 -0.0074 0.20 0.296921 42 -0.326907 2 0.273528 71 -0.0452 0.305302 89 -0.40 0.0610 Region Father's Occupation 81 .0097 0.0126 31 -35 0.309645 07 -0.0126 0.0122 0. Error Mean Parents' Education 16 .0027 0.0002 0.0011 0.0014 0.0009 0.0035 0.446425 41 -0.1000 0.0009 0.0052 0.0291 0.25 26 .30 31 -35 36 .Figure 6: Equalizing Individual Circumstances – Male Gini D ecom position by Circum stance.0181 0.0008 0.0082 26 .0094 0.2000 0.0153 0.

0163 0.0022 0.30 0.2 0.408913 71 -0.3 0.0009 0.30 31 -35 36 .444297 65 -0.25 0.0155 0.0022 0.0022 0.0030 0.409649 06 -0.325249 51 -0.40 Father's Occupation Actual Gini Mean Parents' Education Region Table 8: Equalizing Individual Circumstances – Female Females Actual Gini Bias Std.0271 0.0168 0.336333 26 .379780 17 -0.5 0.0002 0.361672 54 -0.349937 31 -35 0.333157 62 -0.0154 0.339521 26 -0.417275 Region Father's 82 .351209 36 0.0041 0.0279 0.389014 36 0. F emale 0.0263 0.324981 59 -0.4 0.331077 64 -0.1 0 16 .Figure 7: Equalizing Individual Circumstances – Female Gini D ecom position by Circum stance.0043 0.313651 36 – 40 0.0085 0.0179 0. Error Mean Parents' Education 16 .0267 0.0001 0.20 21 .0087 0.0134 0.0015 0.25 26 .349806 62 -0.0099 0.0008 0.0261 0.0298 0.380444 21 .0004 0.0006 0.20 0.0008 0.354741 7 0.399321 93 -0.0030 0.

0277 For females. Then again.0019 0. the individual equalization of the circumstances is given in Figure 7. this hints that in the female population. and father’s occupation.0043 0.0136 72 -0.0139 44 -0. the individual effects of all the three circumstance variables are almost the same in magnitude averaging only to about 2% in each cohort. 83 . other unobserved circumstances not present in the model play a much greater role than parent’s education.0097 0.0178 63 -0.0005 0.0083 77 -0. region of residences. Interestingly.Occupation 84 -0.0007 0.

This measure could be interpreted as a lower bound index of inequality of opportunity since it only takes into consideration three observed circumstances namely region of residence. a counterfactual process is followed by equalizing (neutralizing) the share of observed circumstances to total earnings inequality. In a sense. The methodology used is a replication of Bourguignon’s et al. mean education of parents. a regression analysis was made to come up with the needed information that is required to be able to proceed to the counterfactual simulation. and occupation of the father of the household.Chapter 6: Conclusions and Recommendations This thesis offers a framework to measure the degree of inequality brought about by differences in the circumstances an individual has no control of such as the region one belongs and the education of one’s parent. The result of this thesis is subdivided into four sections. technique in quantifying inequality of opportunities in Brazil using 1996 household data. In summary. the effects of the observed circumstances to inequality are removed in order to come up with an inequality measure that is only due to observed and unobserved efforts and unobserved circumstances. First. Perhaps the most significant regression in this section is the OLS estimation of a reduced form wage equation from which both observed circumstances and observed efforts serve as independent variables. 84 .

It is a noteworthy point to distinguish the obvious differences in the results for the male and female in this section. The next section pertains to the equalizing of the observed circumstance variables in order to come up with the lower bound estimates of the inequality of opportunity measure. For females. Similar 85 . A significant finding in this section discovers that a large chunk of about 60-80% of total earnings inequality is attributed to a residual effect—that is. the next section sets off to describe the decompositions of the inequality measures that were obtained from the counterfactual simulation. (2007). the results of the regressions are consistent with a-priori expectations as exhibited by the base article of Bourguignon et al. Together with this trend are the counterfactual simulations for the partially equalized (neutralizing the direct effects of the observed circumstance variables) and the completely equalized (neutralizing both the direct and indirect effects of observed circumstances) inequality measures. the effect of both observed and unobserved efforts and unobserved circumstances including other factors such as sheer luck.At most. the model must include more circumstance variables such as parental wealth. ability scores. With the needed information from the regression analysis. the trend of actual inequality increases from the youngest to the oldest age cohort. etc. For males. It can be concluded from this result that in order to minimize the said residual. the trend fashioned a convex structure from which the youngest and the oldest cohort exhibited the highest inequality.

with that of males. Likewise. It is found out that. A third section deals with the individual equalization of the observed circumstances to analyze the individual impacts of these circumstance variables to wage inequality. For females. and father’s occupation. a lower bound estimate of 20-40% must not be taken lightly. for males. equalizing each individual circumstance variable separately resulted to almost the same values in magnitude from which only about a 2% drop in the total wage inequality have occurred. this does not diminish the fact that inequality of circumstances plays a relatively substantial role in total wage inequality in the Philippines. 86 . better measures of life-long earnings could be used. The foregoing analysis needs to be interpreted with caution. In connection with this. an improvement of the dependent variable would mean much difference. the partial and complete equalization for females went together with this trend. Perhaps. mean parental education. Even though the residual effect is particularly large. This fact could be further addressed by adding up more observed circumstances as independent variables in the model. for which transitory income components might be lower as suggested by the base article. Considering only three circumstance variables namely region. it is worth restating that the derived measures for inequality of opportunities are only lower bound estimates. equalizing the region variable resulted to the lowest inequality measures.

87 . the region of residence share the biggest role. particularly distributing out resources efficiently. In light with this. possible drawbacks in measurements are expected. it is recommended for future works not only to try to measure this kind of inequality but more interestingly. Spreading opportunities in the regions. As have been stated. Considering the fact that this thesis is a fundamental attempt to quantify inequality of opportunities in the Philippines. a succeeding step is to take note of further research and policy implications. systems of redistributions. this study gives out interesting information that is useful for further research like the fact that the residual effect share a big part of total inequality. might be one area policymakers could strive more to achieve.In light with the results. Notwithstanding. this paper is a fundamental attempt to measure inequality of opportunities in the Philippines. relate this measure with social and political aspects. As have been found out in the individual equalizing of circumstances. and even to economic growth. It is also motivating to think of possible policy implications of this thesis presumptuous of reliable results.

1 4 11.9 5 17.31 2.96 88 51 55 17.01 14.59 12.03 4.5 9.36 1.9 5 3.0 4 11.1 16 2.05 4.55 9.25 75 18.76 6.4 7 14.42 7.1 3 11.59 20 8. Male Descriptive Statistics across Cohorts Variable Hourly Wage Family Size Schooling No Grade Completed Elementary Undergraduate Elementary Graduate High school Undergraduate High school Graduate College Undergraduate College Graduate Post Graduate Labor Market Status Private Household Private Establishment Gov't/Gov't Corporation With pay (Family Business) Father's Education No Grade Completed Elementary Undergraduate Elementary Graduate High school Undergraduate High school Graduate College Undergraduate College Graduate Post Graduate Mother's Education No Grade Completed 16 20 17.1 1 13.13 15.9 9 10.14 31 26.08 80.23 8.1 3 29.43 12.7 6 0.25 0.35 2.07 1.01 75 18.3 1 29.96 88 46 50 45.8 29 2.5 56 60 All 21.2 9 16.5 9 0.7 9 12.14 0.38 28.0 59 2.1 5 12.94 12.34 2.8 7 6.52 22.7 5 6.57 0.26 83.2 12 1.1 3 1.37 92.9 2 29.6 7 13.7 13.4 4 14.8 6 13.6 8 12.13 21.514 4 36 40 30.96 5.88 10 30 50 10 30 30 30 50 30 30 3.06 0.79 12.14 15.06 1.71 88 .03 19.Appendices: Appendix 1: Descriptive Statistics A.65 83 31 35 28.24 0.58 16.8 8 9.2 5 1.2 7 6.44 85.89 16.5 3 26.8 5 15.04 9.79 0.5 9 16.41 24.7 17.25 21.8 8 9.67 07 21 25 22.1 3 50 50 0.1 1 7.31 2.2 2 6.9 1 24.9 6 24.56 12.1 4 1.52 10.1 5 31.2 2 11.1 1 5.5 9.5 28.2 2 5.1 8 3.36 10.2 12 1.94 14.7 0.25 3.06 31.6 62 3.7 3 2.1 6 14.38 28.38 31.76 0.66 28.7 5 6.05 90.6 1 9.7 4 27.0 7 14.6 3 21.01 3.9 9 10.64 05 26 30 27.0 6 18.33 2 2.13 15.88 6.6 3 21.63 38 1.9 5 0.1 3 3.7 93.1 27 2.2 9 23.2 9 13.56 3.38 12.23 30.91 1.4 08 2.36 6.1 1.8 3 15.96 31.28 28 41 45 45.38 12.6 5 30.8 3 20.25 6.69 0.25 100 1.2 9 7.1 9 12.3 5 15.

46 6. Sales Workers Agriculture Trades and related workers Machine Oper.06 5.25 33.25 40.8 6.95 6.78 4.83 20 30 50 6.44 6.6 9 5 10.7 5 3.3 5 6.75 4.9 5.42 4.6 6 14.3 0.06 7.78 1.Elementary Undergraduate Elementary Graduate High school Undergraduate High school Graduate College Undergraduate College Graduate Post Graduate Father's Occupation Government and Managers Professionals Associate Professionals Clerks Service.39 5.76 9.34 21.32 2.4 10.32 8.26 4.8 8 13.6 8 28.9 27.68 3.22 4.12 12.52 1.07 3.01 6.66 16.94 10.18 5.23 33.6 4 13.3 1 6.6 3 9.4 7 29.7 7 5.57 5.06 11.52 1.4 5 3.26 25.6 2 22.25 15.99 10.25 23.13 3.1 1 3.07 8.15 8.41 8.3 1.38 6.13 6.07 2.6 3 6.99 15.24 3.5 1.43 14.3 8 13.13 3.8 9 12.98 5.0 4 11.13 3.49 4.08 3.39 10.13 10 5.76 33.78 7.03 7.78 0.03 5.12 8.3 3 50 5.6 0.13 0.05 89 .1 3 9.1 9 2.94 30.32 43.44 4.2 10.6 3 10 10 30 50 15.02 8.08 3.0 8 0.55 3.61 0.79 10.13 20 50 6.92 24.15 1.1 4 16.8 1.24 3.3 1 0.03 3.05 12.25 3.24 0.36 27.4 6 8.1 2.24 1.03 3.38 3.14 3.48 1.4 7 13.11 0. market.7 1 0.42 15.04 10.66 4.6 6 14 10.74 11.0 5 1.06 28.21 30 10 20 15.38 3.68 5.02 4.2 5 27.94 6.96 4.1 3 5.1 2 3.76 10.09 6.3 6 5.16 11.13 9.1 1 5.2 1 31.44 9.9 1.34 2.25 1.8 10 11.5 6.5 6.2 1 5.13 18.03 17.3 1 12.79 6.83 3.25 30 20 10 10 50 50 24.13 6.05 2.9 7 10.03 4. and Assemblers Unskilled Laborers and workers Special Occupations Regions Ilocos Region Cagayan Valley Central Luzon Bicol Region Western Visayas Central Visayas Eastern Visayas Western Mindanao Northern Mindanao Southern Mindanao Central Mindanao NCR CAR ARMM 27.9 2 2.34 10.36 6.8 1 0.03 6.91 2.48 6.25 3.68 5.96 4.2 7 35.54 7.4 3.3 6.64 10.0 4 31.1 7 3.25 9.08 1.3 7.6 3 3.68 1.2 8 9.44 1.98 2.98 3.8 8 13.05 46.6 5 10.36 10.59 0.9 7 2.39 5.1 9 14.38 12.03 6.41 4.88 11.75 2.3 5.1 2.62 1.6 1 9.

6 7 33.3 3 33.9 51.4 35 2.8 1 10.1 1 33.7 90 .44 3.0 94 2.1 4 6.41 3.5 4 46.4 2 10.3 3 50 50 11.6 9 14.66 67 51 55 27.14 3.0 83 1.01 10.3 3 33.7 8 35.7 20.36 29.16 1.44 17.6 8.2 16.84 21.17 0.3 3 11.73 Female Descriptive Statistics across Cohorts Variable Hourly Wage Family Size Schooling No Grade Completed Elementary Undergraduat e Elementary Graduate High school Undergraduat e High school Graduate College Undergraduat e College Graduate Post Graduate Labor Market Status Private Household Private Establishmen t Gov't/Gov't Corporation With pay (Family Business) Father's Education No Grade Completed Elementary Undergraduat e Elementary Graduate High school Undergraduat e 16 20 17.3 3 50 20.59 38 31 35 34.41 36 2.85 10.71 4.43 7.5 3 17.0 1 23.20 69 41 45 65.11 1.44 13.8 1 15.4 4 66.83 4.36 4.6 9 6.1 1 44.1 1 22.02 7.2 2 33.4 76 2.4 4.6 3 13.3 3 100 33.3 4 3.5 11.2 2 22.5 3.7 5 12.82 44.5 62.84 55.5 46 50 35.4 52 2.71 35 27.0 3 3.2 5 8.6 7 33.2 5 29.1 1 11.71 0.1 41 1.6 8 12.41 24.76 25.08 5.2 5 29.14 6.6 9 16.9 5 26.5 49 2.72 32.6 3 10 4.8 3.5 5 2 0.04 15.5 All 26.7 2 18.1 2 3.18 14.98 26.1 8 0.77 0.2 9 54.4 5 3.583 33 2.0 5 0.03 19.6 2 25.63 1.7 72.9 3 55.5 18.Caraga CALABARZON MIMAROPA 5.9 12.32 3.50 73 0.7 9 58.84 8.3 8 11.2 2 50 33.3 44 2.42 78.5 62.5 25 11.506 09 26 30 35.33 33 56 60 39.87 6.39 11.0 7 0.72 12.5 22.34 13.30 61 36 40 38.3 3 1.54 78 21 25 27.3 3 0.68 3.45 6.5 12.9 1 24.6 8.44 2.58 13.6 9 2.07 4.3 6 1.1 1 33.41 2.43 5.7 5 12.5 37.3 7 13.8 6 1.35 27.3 2 4.16 66.4 4 44.7 6 24.5 4 74.9 20.22 6.2 2 13.

85 36.36 0.5 7 0.68 3.45 43.16 10.79 0.1 7 10.2 3.7 9 11.96 0.16 10.48 17.25 6.71 0.05 2.5 9 25.5 6 33.5 31.2 5 12.0 7 6.1 15.1 3.24 14.12 7.22 5.21 2.8 6 8.28 1 3.3 6 14.08 46.1 7 8.25 33.6 7 66.7 3 9.25 22.2 6.1 1 33.2 13.25 12.7 9 6.2 9 7.7 6 0.06 17.5 18.9 7 29.3 2 13.3 3 66.4 26.9 5 12.63 6.37 19.1 1 22.92 1.5 7 91 .63 1.3 4 27.6 7 50 50 5.1 3 27.7 5 62.9 3 27.84 18.1 10.7 5 16.17 1.2 4 5.24 0.0 1 4. market.08 2.56 23.9 4 10.24 9.6 1 8.62 12.5 66.96 5.4 0.52 13.43 32 12.36 4.55 17.7 0.14 1.3 4 6.7 3 0.4 10.62 10.27 4.54 3.51 12.23 6.8 4 11.8 3.32 17.24 12.77 11.81 7.9 6.4 9 27.7 9 8.25 4.37 4.6 1 6.6 34.6 7 50 4.3 12. Sales Workers Agriculture Trades and related workers Machine Oper.18 18.2 2 11.25 6.8 13.5 7 9.3 3 17.27 11.25 6.16 3.9 13.8 2 13.6 9 16.4 1 5.3 3 5.23 6.16 9.99 14.85 14.5 3 15.17 2.28 12.42 2.2 2 33.2 4 4.62 8.6 1 8.45 15.2 9 8.5 55.72 25 6.2 1 4.8 9 8.33 4.25 33.28 6.7 5 11.3 3 50 16.84 0.High school Graduate College Undergraduat e College Graduate Post Graduate Mother's Education No Grade Completed Elementary Undergraduat e Elementary Graduate High school Undergraduat e High school Graduate College Undergraduat e College Graduate Post Graduate Father's Occupation Government and Managers Professionals Associate Professionals Clerks Service.3 9 17. and Assemblers Unskilled Laborers and workers Special Occupations Regions Ilocos Region Cagayan Valley Central Luzon 14.28 4.16 24.2 5 2.28 14.42 35.64 1.25 18.16 8.72 1.6 5 12.3 4 3.5 2 12.2 1 10.3 3 13.54 14.62 6.2 8.7 25.36 12.1 1 6.14 4.9 9 10.1 2 5.5 2 11.

2 2 33. gen mother=0 replace mother=1 if lc05_rel==2 & lc06_sex==2 92 .2 4 4.4 3.17 8.9 13.96 100 4.25 11.45 3.19 2.71 5.48 3.72 5.09 3.62 6.2 2 100 100 50 100 Appendix 2: Reformatting the Data: This section will discuss how the proponents arranged the dataset of FEIS-LFS to conform to the required format to regress the model.72 100 6.56 4.08 9.25 18.3 3 5.1 1 11.45 8.7 5 22.85 3.51 14.88 11.71 3.92 14.04 3.5 if lc09_grade==5 replace lc09_grade=14 if lc09_grade>=60 & replace lc09_grade=16 if lc09_grade>=70 & note lc09_grade: These replacements are made Education Level to years of schooling.1 1 33.25 6.65 50 8.6 4.88 100 5.77 1.85 9.76 2. gen famsize=1 bysort w_hhid: egen size=sum(famsize) note size: The transfer of data from CS Pro to Stata was not perfect.43 16.42 6.4 5.44 3.5 if lc09_grade==3 replace lc09_grade=10 if lc09_grade==4 replace lc09_grade=11.72 100 6.43 3.85 5.21 4.1 1 18.3 3 4.19 4. We schooling is equivalent to the average of lc09_grade<=69 lc09_grade<=79 to change the Highest assumed that years of the intervals.52 6.Bicol Region Western Visayas Central Visayas Eastern Visayas Western Mindanao Northern Mindanao Southern Mindanao Central Mindanao NCR CAR ARMM Caraga CALABARZON MIMAROPA Total 5.85 4.14 1.5 if lc09_grade==1 replace lc09_grade=6 if lc09_grade==2 replace lc09_grade=7.62 1.42 9.5 6 6.61 2.55 2.74 2.37 8.08 2.1 1 11. so we had to alter the data to make the family size into integers using egen command to sum the number of people per household.6 6.25 6.62 3.1 6 3.4 3.8 5 1.6 5 2.11 3.87 3.55 3.99 7.13 100 4.0 2 3.99 1.69 100 6.78 10.36 1.98 8.12 4.92 13. The family size's decimal point was moved.14 0.86 3.7 3 3.4 15.64 4.73 3.42 10.7 9 8.29 3.9 11. replace lc09_grade=0 if lc09_grade==0 replace lc09_grade=2.08 3.16 7.52 3.4 12.7 5 100 22.45 1.

two members each. gen mwid_div=0 replace mwid_div=1 if lc06_sex==2 & lc05_rel==1 & (lc08_mstat==3 | lc08_mstat==4) note mwid_div: The initial idea was.to indicate that a father heads the household. But we know that the father is still the household head. as opposed to HHisF. There are two household. so we created this dummy variable which indicates a head-of-household father who is separated or widowed. whether he is in fact a widower or not. most were old men) and still included a mother in the survey. As there will only be one "mother" or "fwid_div" in each household. there are those single mother parents. then whatever household that shows up with a sum equal to 1 means that that household is headed by the father. as the case was for the "mother". But again. to indicate a single head-of-household mother. so we also created a variable. but we did not mind this anymore because a household like this will not be used in the model anyway. This ridiculous situation happened proably because there was a father who was recently widowed (we checked the ages. so we may safely replace those HHisF=2 into HHisF=1 -. gen father=0 replace father=1 if lc05_rel ==2 & lc06_sex ==1 note father: This variable indicates a father who belongs to a household headed by the wife. replace HHisF=1 if HHisF==2 note HHisF: But there was a small glitch. per houshold. gen fwid_div=0 replace fwid_div=1 if lc06_sex==1 & lc05_rel==1 & (lc08_mstat==3 | lc08_mstat==4) note mother: The initial idea after getting "mother" was to use egen command to sum that dummay variable up. like last time. per household to get a variable that will indicate whether a person belongs to a household headed by a mother. 93 . gen mwid_div_father= mwid_div + father bysort w_hhid : egen HHisM= sum(mwid_div_father) note HHisM: This will now indicate whether a person belongs to a household headed by a mother. that indicated HHisM=2. gen fwid_div_mother= fwid_div + mother bysort w_hhid : egen HHisF= sum(fwid_div_mother) note HHisF: We had added up 'fwid_div' and 'mother'. we can use egen to sum up the new variable per household and any household that shows up a sum equal to 1 means that the household is headed by a father.. i. households headed by the father with no wife at that time. AS ther will only be one "mother" (wife of the head). some households had both a "mother" and a "fwid_div". note fwid_div: But that initial idea had a loophole.e.note mother: This variable indicates a mother who belongs to a household headed by the husband. to use egen in summing 'father' up. whether with a wife or none.

not the wife because it is the head-of-household fathers' wage that will be the regressand. gen motherhead=0 replace motherhead=1 if HHisM==1 & lc05_rel==1 note motherhead: This variable indicates a mother who belongs to a household headed by herself. mother of the head. one her sons or daughters. replace motherhead=0 if asum==2 note a: Again. mother of the head.. since we are concerned about getting the education of the mother. gen motherany=0 replace motherany=1 if mother==1 | motherhead==1 | sdheadm==1 note motherany: After the changes in the data of mothers. not the daughter who is head of household because it is her wage that will be the regressand. the one that should remain is the grandmother. gen a=0 replace a=1 if mother==1 | motherhead==1 | sdheadm==1 bysort w_hhid: egen asum=sum(a) note a: Last time it was the head-of-household father who was living with their mother. i. whether as wife of the head.there are still households that have two women meeting the criteria. or head herself. some households had both 'mother' and 'sdheadm'. the data shows that there are no more household that has more than one member meeting the criteria of being a wife of the head. gen mothersample=0 replace mothersample=1 if mother==1 | motherhead==1 | sdheadm==1 bysort w_hhid: egen mothersum=sum(mothersample) note mothersample: The initial idea was to have dummy variable that will indicate a mother. replace mother=0 if mothersum==2 note mothersample: Since we are after how parents' education affect their children's wage. An investigation of the data shows due to head-ofhousehold husbands living with their wife and mother. therefore some 'mothersample' were equal to 2. what must be retained as mother in that household is the grandmother. indicates exactly whether a woman is any of these three positions. But there was gltich again: some households indicated two women that met this criteria (the "if" condition). But before that. we need to do the same process in getting a "fatherany". some households had both 'motherhead' and 'sdheadm' -. note motherany: This variable will be used later to extract the education of the mother. gen sdheadf=0 replace sdheadf=1 if lc05_rel==7 & lc06_sex==1 94 .gen sdheadm=0 replace sdheadm=1 if lc05_rel==7 & lc06_sex==2 note sdheadm: This variable indicates a mother who belongs to a household headed by her child. This new variable. But some head-of-household mothers also lived with their mothers.e. or is the head herself. thus. "motherany".

this variable indicates a father who is head of household.could be that the head is either the mother or the father. This caused some of the households to have both 'sdheaf' (father of head-of-household wife) and 'father' (husband of head-of-household wife). gen fatherany=0 replace fatherany=1 if father==1 | fatherhead==1 | sdheadf==1 note fatherany: This variable is to indicates whether a person is a father who belongs to a household headed by his wife. gen wagehr = lc27_pbasic/lc21_pnwhrs gen lnwagehr=ln(wagehr) note lnwagehr: This is the natural logarithm of hourly wages. As in the case of the grandmother before. Now. the head-ofhousehold father is living with his father. gen son=0 replace son=1 if lc05_rel==3 & lc06_sex==1 note son: This is to indicate sons of head of household -. gen fatherhead=0 replace fatherhead=1 if HHisF==1 & lc05_rel ==1 note: Next. or father of the head. not the head-of-household father. which was computed using basic wage per day and normal working hours per day. there were households that had both 'fatherhead' and 'sdheadf'. gen sdheadwiddivw=0 replace sdheadwiddivw=1 if lc05_rel==7 & lc06_sex==2 & (lc08_mstat==3 | lc08_mstat==4) 95 . the one that should remain as father (in the model) is the grandfather. gen hn=w_hhid note hn: This is just to replicate the household IDs.note: We already have a husband who belongs to a household headed by his wife. or head-of-household father. gen fathersample=0 replace fathersample=1 if father==1 | fatherhead==1 | sdheadf==1 bysort w_hhid: egen fathersum=sum(fathersample) replace fatherhead=0 if fathersum==2 note fathersample: In the same token as the mothersample. But the one that should remain as father is the father-in-law. Since we are interested in the education of the father. gen d=0 replace d=1 if father==1 | fatherhead==1 | sdheadf==1 bysort w_hhid: egen dsum=sum(d) replace father=0 if dsum==2 note d: Then there are also husbands who are living with their parents-in-law and the wife is the head. this is to test whether there are more than one member who met the criteria. this new variable is to indicate a father who belongs to a household headed by his one of his children. thus.

note sdheadwiddivw: The initial idea is to use egen to sum up households that are headed by either son or daughter (which is indicaed by either sdheadm or sdheadf). But since this individual is also a head-ofhousehold father. Now we have a dummy variable that indicates whether a person belongs to a household headed by either a son or daughter. That is what this new variable indicates. or is the brother of the head. If we use 'sdheadf' for the egen command. we have to take into consideration single mothers. gen sibheadb=0 replace sibheadb=1 if HHisSD==1 & lc05_rel==4 & lc06_sex==1 note sibheadb: This indicates a brother who belongs to a household headed his sibling who is child also. replace HHisSD=0 if motherany==1 & daughterany==1 96 . This was caused by the presence of a grandmother that resulted in to a 'sonany=1'. But there are households that have single parents. replace sonhead=0 if HHisSD==1 & fatherhead==1 note sonhead: A problem that was encountered was that some individuals were both fatherhead and sonhead. gen sdhead2= sdheadf + sdheadwiddivw bysort w_hhid: egen HHisSD = sum(sdhead2) note HHisSD: As there will only be one 'sdheadf' and 'sdheadwiddivw' in a given household. heads the household himself. gen daughterany=0 replace daughterany=1 if daughter==1 | daughterhead==1 | sibheads==1 note daughterany: This indicates a woman who is daughter of the head. he has to have only one classification. gen daughterhead=0 replace daughterhead=1 if HHisSD==1 & lc05_rel==1 & lc06_sex==2 note daughterhead: This indicates a daughter who is at the same time the head. gen sonhead=0 replace sonhead=1 if HHisSD==1 & lc05_rel==1 & lc06_sex==1 note sonhead: This indicates a son who is at the same time the head. gen daughter=0 replace daughter=1 if lc05_rel==3 & lc06_sex==2 note daughter: This indicates a daughter of the head. and we deemed those individuals more suitingly as head-ofhousehold father. gen sonany=0 replace sonany=1 if son==1 | sonhead==1 | sibheadb==1 note sonany: This variable indicates whether an individual is a son of the head. we can use egen to sum up per household the sum of the two. gen sibheads=0 replace sibheads=1 if HHisSD==1 & lc05_rel==4 & lc06_sex==2 note sibheads: This indicates a sister of the head and the head is a child. head herself or sister of the head (who is also a son).

and we deemed it better for them to be classified as mothers. quietly tab lc19_pclass. Then we also got the dummy variables to test for robustness later. gen parentsed= (edoffather+edofmother)/2 gen parediff= edoffather-edofmother gen absparediff= abs(parediff) gen soneduc= 0 replace soneduc= lc09_grade if sonany==1 gen daughteduc=0 replace daughteduc= lc09_grade if daughterany==1 gen soneduc2=soneduc^2 gen daughteduc2=daughteduc^2 quietly tab w_regn. employers. edofmother was obtained. or that the 97 . generate (lmstatus_) keep if fatherocc1>0 note fatherocc1: This is to remove those that have fatherocc1=0 because this incidence is too vague.we made sure of that in the various transformations we did -we can use egen to sum up 'fathered' per household. This could mean that the household does not have a father to begin with.replace daughterany=0 if motherany==1 & daughterany==1 note daughterany: There has to be only one category. to align the education of the father to every member of the household. gen mothered=0 replace mothered= lc09_grade if motherany==1 bysort w_hhid: egen edofmother=sum(mothered) note edofmother: In the same manner as the 'edoffather'. generate (w_regn_) gen occ1=0 replace occ1=1 if lc16_procc>=1110 & lc16_procc<=1490 replace occ1=2 if lc16_procc>=2112 & lc16_procc<=2460 replace occ1=3 if lc16_procc>=3112 & lc16_procc<=3480 replace occ1=4 if lc16_procc>=4111 & lc16_procc<=4223 replace occ1=5 if lc16_procc>=5111 & lc16_procc<=5231 replace occ1=6 if lc16_procc>=6111 & lc16_procc<=6490 replace occ1=7 if lc16_procc>=7111 & lc16_procc<=7442 replace occ1=8 if lc16_procc>=8111 & lc16_procc<=8340 replace occ1=9 if lc16_procc>=9111 & lc16_procc<=9333 replace occ1=10 if lc16_procc>=111 & lc16_procc<=930 gen foccu1=0 replace foccu1=occ1 if fatherany==1 bysort w_hhid: egen fatherocc1=sum(foccu1) keep if lc19_pclass==0 | lc19_pclass==1 | lc19_pclass==2 | lc19_pclass==5 note lc19_pclass: This is to limit the study to exclude the selfemployed. gen fathered=0 replace fathered= lc09_grade if fatherany==1 bysort w_hhid: egen edoffather=sum(fathered) note edoffather: Since there is only one 'fatherany' per houshold -. and family business without pay.

50274 -0.62723 ** * ** ** * ** * ** * ** * ** * ** * ** * ** * * 36 .46772 -0.30 0.5122 -0.04309 0. Robust OLS 16-20 0.04303 0.532 -0.5598 -0.00461 -0.62242 -0.0116 0.4673 -0.4918 -0.5751 -0.7433 -0.0112 -0.84884 -0.0114 -0.0043 3 0.3493 -1.4219 Cagayan Valley -0.5537 -0.5478 -1.0261 0.7172 -0.6139 -0.62483 -0.4159 -0.0328 5 0.5426 -0.5765 -0.6641 -0.8572 -0.5846 -0.5408 -0.3755 Bicol Region -0.3945 -0.5726 -0.3817 -0.86618 -0.476 -0.3965 -0.716 -0. quietly tab fatherocc1.40 0.9147 -0.household father had no occupation at that time but was employed before.9529 -1.4218 -0.03509 -0.5809 *** *** *** *** *** *** *** ** *** *** 31 -35 0.547 -0.0329 0.6649 Central Visayas -0.0516 8 0.138 -0.0043 1 -0.55071 -0.5801 -0. REGION Ilocos Region *** 98 .1088 -1.565 -0.7737 -0.4934 -0.5486 -0.5738 -1.4296 -0.62213 -0.716 -0.5151 ** * ** * ** * ** * ** * ** * ** * ** * ** * ** * ** * 26 . males.5825 -0.4754 -0.20272 -0.02556 ** 0.6649 -0.5747 -0.4155 -0.8261 -0.5078 -0.0345 0.4325 -0.6143 ** * ** * ** * ** * ** * ** * ** * ** * ** * ** * ** * 21 .25 0.261 -0. or that the father was unemployed even before.6399 Central Luzon -0.70115 -0.5729 -0.0047 0.5058 Western Mindanao Northern Mindanao Southern Mindanao -0.20963 -0.3767 -0.69611 -0.5605 -0.3783 -0.4519 -0.7213 -0.5634 -0.6401 -0.508 -0.539 Eastern Visayas -0.5415 -0.5097 -0.2595 -0.84302 -0.1077 2 0.6108 -0. generate (fatherocc1_) Appendix 3: Reduced Form Equations (OLS) estimates for males and females Reduced-form Wage Equations.0073 -0.48367 -0.8324 -0.5589 Western Visayas -0.8565 -0.8559 -0.5556 -0.4196 *** *** *** *** ** ** ** Average Parents' Education Difference of Parents' Educ.0513 3 0.50012 -0.7298 -0.0196 -1.4895 -0.6104 -0.5752 -0.1774 -0.1419 -0.8989 -1.1084 4 -0.

0772 9 0.6638 Caraga -0.4986 -0.1694 7 0.6660 1 0.05437 -0.4273 -0.1706 -0.1428 4 0.4192 -0.0104 -0.2567 -0.6556 (base) -0.0081 0.1381 -0.7752 -0.6622 -0.1486 -0.2652 -1.4887 -0.0509 0.1153 0.0415 -0.0019 -0.7579 -0.0693 -0.28346 0.46753 -0.06054 0.5997 -1.1378 0.4898 -0.6569 7 0.06919 0.0539 ** * -0.4064 -0.0404 -0.1687 6 0.0359 -0.2672 -0.0106 1 0. and Assemblers 99 .0412 0.1526 -0.7398 -0.0712 9 -0.6023 -0.5583 -0.006 *** ** *** *** -0.9067 -0.5585 -0.0269 3 -0.9032 -0.4049 Professionals Associate Professionals Clerks 0.0529 -0.15512 0.1308 -0.0145 -0.44179 ** 0.45176 0.0071 -0.3704 -0.0801 5 -0.0894 8 0.28264 0.7755 -0.145 -0.1662 0.06373 0.47477 0.0014 0.2539 -0.0394 3 -0.34774 -0.133 ** -0.5631 -0.3924 -0.9914 -1.6055 -0.498 CALABARZON -0.22767 ** -0.1798 0.1141 4 0.4741 2 0.2468 ** * ** * ** * ** * ** * ** * -0.0537 -0.2461 -0.1059 -0.6559 -0.05047 0.2001 1 0.5651 0.0849 1 0.42544 0.0105 1 0.0929 3 0. Sales Workers ** Agriculture Trades and related workers Machine Oper.18241 -0.2369 0.1718 9 0.11296 0.2082 4 0.27896 0.00171 ** * ** * ** * 0.1024 -0.6389 -0.06025 0.15201 ** * ** * 0.1391 -0.5072 6 -0.46972 -0.44147 0.2658 MIMAROPA Father's Occupation Government and Managers -0.9756 -1.45392 0.45793 -0.7615 * Service.128 -0.58151 0.1158 0.1752 9 0.0562 3 0.8388 -0.0299 7 0. market.10077 * ** ** * -0.56552 0.9016 -1.2955 *** ** *** *** *** ARMM -0.0579 8 0.10282 0.4918 ** * ** * ** * * ** ** * -0.03816 0.0567 5 -0.27474 0.0328 -0.4923 -0.0174 0.46163 0.33924 -0.8698 -0.Central Mindanao NCR CAR -0.1438 0.082 ** * * ** ** * -1.

Unskilled Workers and Laborers Special Occupations Constant Num of Obs Area of F-stat R-squared JB Test for Normality VIF (Base) -0.0589 7 0.0377 8 636 0.00287 ** * 26 .0000 1.3880 0.5847 Western Visayas -0.4988 -0.49 *** 3.2869 0.09353 -0.5648 -0.0583 8 0.4635 -0.28595 -0.7343 -0.82 ** * -0.1049 7 0.081 -0.4462 -0.2884 -0.5808 -0.35696 -0.3355 -0.2337 0.3479 -0.65495 -0.65606 -0.4785 3 88 .06924 ** * 0.30 0.2036 0.2315 4 0.6226 Central Visayas Eastern Visayas -0.0493 2 0. Robust OLS 16-20 0.4239 -0.0926 2.6659 -0.612 100 .43 -0.2489 ** ** * * ** * ** * -0.5535 -0.5306 Cagayan Valley -0.06899 0.43661 ** ** ** * ** * ** * ** * -0.3636 -0.3004 -0.326 -0.8433 -0.0086 1 21 .0512 8 -0.0742 0.6674 Central Luzon -0.0240 5 0.0589 4 0.9769 9 1463 0.0091 0.6661 -0. females.2154 1 3.15 *** Reduced-form Wage Equations.31052 -0.0577 1 0.0000 0.1339 4 -0.1973 -0.5409 0.5813 ** * -0.29182 243 0.7837 -0.20801 -0.00301 0.20534 -0.5334 -0.31584 -0.2752 -0.3314 Bicol Region -0.4229 -0.6779 -0.09303 -0.2608 -0.35903 -0.44 ** * 0.5089 * -0.6249 -0.6784 -0.3419 0.4772 -0.2657 -0. 0.0000 0.6109 -0.0026 36 .43722 -0.2599 -0.881 -0.4313 -0.0000 1.0000 1.3605 -0.0041 ** -0.3112 -0.3335 -0.0933 -0.2922 Average Parents' Education Difference of Parents' Educ.3435 -0.0447 1.0000 0.0307 2.28711 -0.1613 -0.4102 -0.0371 -0.0709 2 0.40 0.56 ** * 3.5908 2.0240 6 31 -35 0.0000 0.3093 0.25 0.0693 7 -0.6673 ** * ** * ** * ** * ** * ** * ** -0. REGION Ilocos Region ** * ** * -0.4417 -0.379 -0.99403 1474 0.

8336 -0.7308 -0.2626 0.0201 -0.12357 -0.3145 -0.5495 (Base) -0.2429 1 0.5831 -1.1863 2 * Clerks Service.0384 0.3188 ARMM -0.1875 -0.2718 -0.8378 5 0.2132 -0.128 -0.8474 -0.4461 ** * *** -1.4102 0.2624 -0.8501 -0.36065 0.1421 -0.3555 1 0.5948 -0.* Western Mindanao Northern Mindanao Southern Mindanao Central Mindanao NCR CAR -0.22344 -0.0721 -0.7965 -1.1865 Caraga -0.5751 -0.3451 7 -0.4797 -0.0565 4 0.4416 -0.3891 -1.4101 ** * ** ** * ** -0.22413 -0.5337 -0.9007 9 0.6331 -0.2332 1 0.36808 0.2936 3 0.2393 9 -0.16121 -0.2069 7 1.26766 ** * ** * ** * 0.0118 4 MIMAROPA * Associate Professionals 0.1566 -0.1231 -0.13086 0.12123 -0.21521 -0.2781 -0.3635 -0.206 -0.41358 0.2576 9 0.37185 ** * ** * ** * 0.2222 -0.9482 4 0.5504 -0.2824 -0.0746 Professionals -0.8465 2 -0.6065 1 101 .5372 Father's Occupation Government and Managers -0.36873 -0.48582 -0.1784 * 3 0.077 -0. Sales Workers 0.9606 0.4665 -0.2454 -0.3964 -0.1731 -0.3095 9 0.2545 7 -0.2703 -0.44127 ** * * ** * -0.0806 0.2783 -0.44048 -0.7227 ** * ** 0.3057 -0.36728 0.1504 ** * * ** * * ** * ** * -0.2687 -0.3652 0.2807 -0.0291 -0. market.9106 7 1.15979 -0.46888 -0.9348 2 -0.0134 ** * 0.7519 -0.265 -0.8371 -0.7496 0.48618 -0.2345 -0.46769 -0.5798 -1.3085 9 -0.1652 -0.4238 -0.3223 -0.0091 8 0.2812 -0.43796 -0.1751 -0.13867 0.5949 -0.5801 CALABARZON -0.3783 -0.2365 3 0.817 -0.4088 * ** * * -0.0629 1 0.1419 3 0.031 -0.9157 4 0.3387 -0.3496 5 0.6203 -0.019 0.4775 -1.

0936 5 0.0862 ** 0. `i’ are counters .0000 0.09868 0.6827 2.0300 8 * -0.08352 0.0109 -0.3794 0.1436 3.0806 7 334 .2581 0.45 ** * ** * -0.3724 1 136 0.27467 0.34983 0.3318 -0.-0.0000 0.0416 1. As in the seeds.0265 5 Trades and related workers Machine Oper.3119 0.4411 -0.0963 -0.0143 -0. and Assemblers Unskilled Workers and Laborers Special Occupations Constant Num of Obs Area of F-stat R-squared JB Test for Normality VIF 0.168 -0.0943 0.4864 9 0. 102 .62 ** * 3.0119 Agriculture -0.0090 5 0.2139 0.8842 8 53 .1434 9 -0.4971 3 0.83 ** * 2.5637 0.34793 2.0054 -0.65088 867 0.0653 3 0.0607 8 0.3073 0.1516 -0.1063 4 0. To facilitate reading the program here is an explanation of some of the matrices used in the program.0914 0. The matrix su is the standard deviation of the predicted stochastic errors.4551 5 0. 0. rs`i’ is the underlined Kx1 vector for the looping of the program.5710 1.2164 -0. 0. matrix c is the vector of OLS estimates (without the constant term).0004 1.10926 0.10 *** Appendix 4: Program for Generating Bias Term This section shows an example of deriving the simulation for females ages 16-20 using the complete variables equation (direct/partial effects).6611 1.6567 2 673 .0335 7 0.4800 2 0.73 ** * 2.5041 3 0. 0.11372 0.09312 0.1050 1 (Base) 0.0104 0.

The observed values of the circumstance variables, e.g. mean parents’ education, parentsed, are replaced with constant numbers before they are substituted to the unbiased estimate (to be explained later). For dummy variables, the proponents assigned 1 for the dummy variable category with the highest frequency.

B`i’ is the bias vector already. Adding this to matrix c which is matrix uc which is

, and

, we get a vector of simulated log wages without the

constant term, hence, parsim`i’ which stands for partial simulated log wages. Before adding the constant term, we must first change the matrix into a variable in the data editor using svmat command. Then, after adding the constant term and taking the antilog of the sum, we get the final simulated stream of wages, sim`i’ or in the framework. mkmat parentsed absparediff w_regn_1 w_regn_2 w_regn_3 w_regn_4 w_regn_5 w_regn_6 w_regn_7 w_regn_8 w_regn_9 w_regn_10 w_regn_11 w_regn_13 w_regn_14 w_regn_15 w_regn_16 w_regn_17 fatherocc1_1 fatherocc1_2 fatherocc1_3 fatherocc1_4 fatherocc1_5 fatherocc1_6 fatherocc1_7 fatherocc1_8 daughteduc lmstatus_2 lmstatus_3, matrix(x) matrix ikk=inv(x'*x) matrix su=(.8229396) matrix one=(1) quietly regress lnwagehr parentsed absparediff w_regn_1 w_regn_2 w_regn_3 w_regn_4 w_regn_5 w_regn_6 w_regn_7 w_regn_8 w_regn_9 w_regn_10 w_regn_11 w_regn_13 w_regn_14 w_regn_15 w_regn_16 w_regn_17 fatherocc1_1 fatherocc1_2 fatherocc1_3 fatherocc1_4 103

fatherocc1_5 fatherocc1_6 fatherocc1_7 fatherocc1_8 daughteduc lmstatus_2 lmstatus_3, robust matrix beta = get(_b) matrix coef = beta' matrix c = coef[1..29,1] replace parentsed = 6.225287 replace absparediff = 2.158309 replace w_regn_1 = 0 replace w_regn_2 = 0 replace w_regn_3 = 1 replace w_regn_4 = 0 replace w_regn_5 = 0 replace w_regn_6 = 0 replace w_regn_7 = 0 replace w_regn_8 = 0 replace w_regn_9 = 0 replace w_regn_10= 0 replace w_regn_11= 0 replace w_regn_13= 0 replace w_regn_14= 0 replace w_regn_15= 0 replace w_regn_16= 0 replace w_regn_17= 0 replace fatherocc1_1 = 0 replace fatherocc1_2 = 0 replace fatherocc1_3 = 0 replace fatherocc1_4 = 0 replace fatherocc1_5 = 0 replace fatherocc1_6 = 1 replace fatherocc1_7 = 0 replace fatherocc1_8 = 0 replace fatherocc1_10 = 0 matrix drop x mkmat parentsed absparediff w_regn_1 w_regn_2 w_regn_3 w_regn_4 w_regn_5 w_regn_6 w_regn_7 w_regn_8 w_regn_9 w_regn_10 w_regn_11 w_regn_13 w_regn_14 w_regn_15 w_regn_16 w_regn_17 fatherocc1_1 fatherocc1_2 fatherocc1_3 fatherocc1_4 fatherocc1_5 fatherocc1_6 fatherocc1_7 fatherocc1_8 daughteduc lmstatus_2 lmstatus_3, matrix(x) mkmat uc, matrix(uc) local i = 1 104

while `i'<= 100 { mkmat set`i', matrix (initial`i') mat rs`i'=initial`i'[1..29,1] mat K`i'=rs`i''*ikk*rs`i' mat s2_`i'=su*inv(one-K`i') svmat s2_`i' if s2_`i'>0 { gen s_`i'=sqrt(s2_`i') mkmat s_`i', mat(sig`i') mat sigma`i'= sig`i'[1,"s_`i'"] mat B`i'= ikk*rs`i'*sigma`i' mat new`i'= B`i' + c mat parsim`i' = x*new`i' + uc svmat parsim`i' gen sim`i'= exp(parsim`i' + 2.138788) drop s2_`i' s_`i' parsim`i' } else { drop s2_`i' mat drop initial`i' rs`i' K`i' s2_`i' } local i =`i' + 1 }

105

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