The Effect of Hearing Impairments on Wage Earnings: Evidence from a Copula‐Based Spline Selection Model

Abstract

This paper investigates the effect of hearing impairments on annual wage earnings. A standard Heckman‐style selection model suggests that hearing impairments reduce earnings by approximately 14 per cent, with no evidence of selection bias. The paper then relaxes the assumption of bivariate normality using a copula specification, and the paper allows for potentially nonlinear links between nonbinary covariates and earnings using smooth spline functions. By incorporating those two deviations, not only does the model appear to provide a better fit to the data, but hearing impairments appear to reduce earnings by 19 per cent, an effect 36 per cent larger than what is suggested by the standard selection setup. The model also uncovers evidence of statistically significant selection bias.