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Self-Selection and Subjective Well-Being: Copula Models with an Application to Public and Private Sector Work

SOEPpapers 135, 21 S.

Simon Luechinger, Alois Stutzer, Rainer Winkelmann


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We discuss a new approach to specifying and estimating ordered probit models with endogenous switching, or with binary endogenous regressor, based on copula functions. These models provide a framework of analysis for self-selection in economic well-being equations, where assigment of regressors may be choice based, resulting from well-being maximization, rather than random. In an application to public and private sector job satisfaction, and using data on male workers from the German Socio-Economic Panel, we find that a model based on Frank's copula is preferred over two alternative models with independence and normal copula, respectively. The results suggest that public sector workers are negatively selected.

JEL-Classification: I31;C23
Keywords: Ordered probit, switching regression, Frank copula, job satisfaction, German Socio-Economic Panel
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