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

• Main Author: Adriaan Kalwij
• Format: Article
• Language: English
• Published: Max Planck Institute for Demographic Research 2014-10-01
• Series: Demographic Research
• Subjects: income; mortality; proportional hazard model; unobserved heterogeneity
• Online Access: http://www.demographic-research.org/volumes/vol31/30/

<b>Background</b>: Statistical theory predicts that failing to control for unobserved heterogeneity in a Gompertz mortality risk model attenuates the estimated income-mortality gradient toward zero. <b>Objective</b>: I assess the empirical importance of controlling for unobserved heterogeneity in a Gompertz mortality risk model when estimating the income-mortality gradient. The analysis is carried out using individual-level administrative data from the Netherlands over the period 1996-2012. <b>Methods</b>: I estimate a Gompertz mortality risk model in which unobserved heterogeneity has a gamma distribution and left-truncation of life durations is explicitly taken into account. <b>Results</b>: I find that, despite a strong and significant presence of unobserved heterogeneity in both the male and female samples, failure to control for unobserved heterogeneity yields only a small and insignificant attenuation bias in the negative income-mortality gradient. <b>Conclusions</b>: The main finding, a small and insignificant attenuation bias in the negative income-mortality gradient when failing to control for unobserved heterogeneity, is positive news for the many empirical studies, whose estimations of the income-mortality gradient ignore unobserved heterogeneity.