Treatment Effect

A ‘treatment effect’ is the average causal effect of a binary (0–1) variable on an outcome variable of scientific or policy interest. The term ‘treatment effect’ originates in a medical literature concerned with the causal effects of binary, yes-or-no ‘treatments’, such as an experimental drug or a new surgical procedure. But the term is now used much more generally. The causal effect of a subsidized training programme is probably the mostly widely analysed treatment effect in economics (see, for example, Ashenfelter, 1978, for one of the first examples, or Heckman and Robb, 1985 for an early survey). Given a data-set describing the labour market circumstances of trainees and a non-trainee comparison group, we can compare the earnings of those who did participate in the programme and those who did not. Any empirical study of treatment effects would typically start with such simple comparisons. We might also use regression methods or matching to control for demographic or background characteristics.