Research Paper No. 664

DATA REDUCTION OF DISCRETE RESPONSES: AN APPLICATON OF CLUSTER ANALYSIS

by

Jeff Borland, Joe Hirschberg & Jenny Lye

December 1998

Department of Economics. University of Melbourne. Parkville Victoria 3052 Australia

ABSTRACT

One form of data reduction is cluster analysis which is used to separate detailed data into constituent groups. In this paper we illustrate a useful application of cluster analysis to the data reduction of detailed discrete responses of a type that are often found in large surveys. This method is illustrated using the ABS Training and Education Experience Survey 1993a(TEES). This survey provides a detailed range of information on individual's computer skills. We simplify the information given in the survey by using a form of cluster analysis to combine categories of computer ability and skills. Wage equations are estimated using different assumptions on the degree of clustering.
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