where ρ is the correlation between unobserved determinants of propensity to work varepsilon and unobserved determinants of wage offers u, σ u is the standard deviation of u , and lambda is the inverse Mills ratio evaluated at Zgamma . This equation demonstrates Heckman's insight that sample selection can be viewed as a form of omitted-variables bias, as conditional on both X and on lambda it is as if the sample is randomly selected. The wage equation can be estimated by replacing gamma with Probit estimates from the first stage, constructing the lambda term, and including it as an additional explanatory variable in linear regression estimation of the wage equation. Since sigma_u > 0, the coefficient on lambda can only be zero if
ho=0, so testing the null that the coefficient on lambda is zero is equivalent to testing for sample selectivity.
Heckman's achievements have generated a large number of empirical applications in economics as well as in other social sciences. The original method has subsequently been generalized, by Heckman and by others