Broken or Fixed Effects?

Charles E. Gibbons, Juan Carlos Suárez Serrato, Michael B. Urbancic

NBER Working Paper No. 20342
Issued in July 2014, Revised in January 2018
NBER Program(s):Labor Studies, Public Economics

We replicate eight influential papers to provide empirical evidence that, in the presence of heterogeneous treatment effects, OLS with fixed effects (FE) is generally not a consistent estimator of the average treatment effect (ATE). We propose two alternative estimators that recover the ATE in the presence of group-specific heterogeneity. We document that heterogeneous treatment effects are common and the ATE is often statistically and economically different from the FE estimate. In all but one of our replications, there is statistically significant treatment effect heterogeneity and, in six, the ATEs are either economically or statistically different from the FE estimates.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20342

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