## Model of Lee

In the model of Lee (1978), y2i represents the logarithm of the wage rate of the rth worker in case he or she joins the union and y3i represents the same in case he or she does not join the union. Whether or not the worker joins the union is determined by the sign of the variable

Уи = УІі-УІ + *іа + і>і-

Because we observe only y2i if the worker joins the union and y3i if the worker does not, the logarithm of the observed wage, denoted yt, is defined by

Уі = Уи if Тн>0

= y’ti if j/J) s 0.

Lee assumed that x2 and x3 (the independent variables in the y* and y3 equations) include the individual characteristics of firms and workers such as regional location, city size, education, experience, race, sex, and health, whereas z includes certain other individual characteristics and...

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