Application of Ordered Logit Model in Investigating the factors Affecting People’s Income (A Case Study in Tehran City)

Abstract

The study aimed at investigating the factors affecting people’s income in Tehran city. The data was collected through field survey, designing and running a questionnaire using simple sampling method in 2013. The factors affecting income were estimated using ordered logit based on maximum likelihood (ML).Income was evaluated as a function of education, age, age squared, gender, residence, occupation, wealth and private investment variables. The results indicated that the increase in the age (continuous variable), gender (for women), residence (for non-capital of the provinces), wealth (for those who had not inherited) and private investment (for those who had not invested) decreases the likelihood of the people to be placed at higher income levels, and increase in the age squared variable increases the likelihood of the people to be placed at higher levels of income. In other words, people’s income increases from certain age onwards. In case of education and occupation, Increase in the levels of these variables increases the likelihood of people to be placed at higher income levels. The calculated marginal effects are also in accordance with the theoretical expectations. Based on calculated Pseudo R-Square statistics, it can be said that estimated ordered logit model also enjoys a high level of goodness of estimate.