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3SLS |
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Furthermore, there are significant correlations between the estimated 2SLS residuals of the model, which suggests that 3SLS estimation is appropriate. By taking into account the cross-equation correlation, 3SLS yields more efficient estimates for simultaneous-equation systems than two-stage least squares (2SLS) and single-equation ordinary least squares (OLS) while taking care of potential endogeneity issues. Instrumental variables estimation of each industry's wage equation would be consistent, but 3SLS estimation has the added advantage of improving the efficiency of estimation given cross-equation correlations in the residuals, which are highly likely in the presence of common shocks across all industries. |
3SLS |
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