An NCME Instructional Module on

Introduction to Structural
Equation Modeling: Issues
and Practical Considerations
Pui-Wa Lei and Qiong Wu, The Pennsylvania State University

Structural equation modeling (SEM) is a versatile statistical modeling tool. Its estimation
techniques, modeling capacities, and breadth of applications are expanding rapidly. This module
introduces some common terminologies. General steps of SEM are discussed along with important
considerations in each step. Simple examples are provided to illustrate some of the ideas for
beginners. In addition, several popular specialized SEM software programs are briefly discussed
with regard to their features and availability. The intent of this module is to focus on foundational
issues to inform readers of the potentials as well as the limitations of SEM. Interested readers are
encouraged to consult additional references for advanced model types and more application
examples.
Keywords:

structural equation modeling, path model, measurement model

tructural equation modeling (SEM) has gained popularSperhaps

ity across many disciplines in the past two decades due
to its generality and flexibility. As a statistical modeling tool, its development and expansion are rapid and

Pui-Wa Lei is an assistant professor, Department of Educational

and School Psychology and Special Education, The Pennsylvania
State University, 230 CEDAR Building, University Park, PA 16802;
[email protected]. Her primary research interests include structural
equation modeling and item response theory. Qiong Wu is a doctoral
student in the Department of Educational and School Psychology and
Special Education, The Pennsylvania State University, 230 CEDAR
Building, University Park, PA 16802; [email protected]. Her interests are
measurement, statistical modeling, and high-stakes testing.
Series Information
ITEMS is a series of units designed to facilitate instruction in educational measurement. These units are published by the National
Council on Measurement in Education. This module may be photocopied without permission if reproduced in its entirety and used for
instructional purposes. Information regarding the development of new
ITEMS modules should be addressed to: Dr. Mark Gierl, Canada Research Chair in Educational Measurement and Director, Centre for
Research in Applied Measurement and Evaluation, Department of Educational Psychology, 6-110 Education North, University of Alberta,
Edmonton, Alberta, Canada T6G 2G5.

Fall 2007

ongoing. With advances in estimation techniques, basic models, such as measurement models, path models, and their
integration into a general covariance structure SEM analysis framework have been expanded to include, but are by
no means limited to, the modeling of mean structures, interaction or nonlinear relations, and multilevel problems.
The purpose of this module is to introduce the foundations
of SEM modeling with the basic covariance structure models to new SEM researchers. Readers are assumed to have
basic statistical knowledge in multiple regression and analysis of variance (ANOVA). References and other resources
on current developments of more sophisticated models are
provided for interested readers.
What is Structural Equation Modeling?
Structural equation modeling is a general term that has
been used to describe a large number of statistical models
used to evaluate the validity of substantive theories with
empirical data. Statistically, it represents an extension of
general linear modeling (GLM) procedures, such as the
ANOVA and multiple regression analysis. One of the primary advantages of SEM (vs. other applications of GLM)
is that it can be used to study the relationships among latent constructs that are indicated by multiple measures. It is
also applicable to both experimental and non-experimental
data, as well as cross-sectional and longitudinal data. SEM
takes a confirmatory (hypothesis testing) approach to the
33

multivariate analysis of a structural theory, one that stipulates causal relations among multiple variables. The causal
pattern of intervariable relations within the theory is specified a priori. The goal is to determine whether a hypothesized theoretical model is consistent with the data collected
to reflect this theory. The consistency is evaluated through
model-data fit, which indicates the extent to which the postulated network of relations among variables is plausible.
SEM is a large sample technique (usually N > 200; e.g.,
Kline, 2005, pp. 111, 178) and the sample size required is
somewhat dependent on model complexity, the estimation
method used, and the distributional characteristics of observed variables (Kline, pp. 1415). SEM has a number of
synonyms and special cases in the literature including path
analysis, causal modeling, and covariance structure analysis.
In simple terms, SEM involves the evaluation of two models:
a measurement model and a path model. They are described
below.

Path Model
Path analysis is an extension of multiple regression in that it
involves various multiple regression models or equations that
are estimated simultaneously. This provides a more effective
and direct way of modeling mediation, indirect effects, and
other complex relationship among variables. Path analysis
can be considered a special case of SEM in which structural
relations among observed (vs. latent) variables are modeled.
Structural relations are hypotheses about directional influences or causal relations of multiple variables (e.g., how
independent variables affect dependent variables). Hence,
path analysis (or the more generalized SEM) is sometimes
referred to as causal modeling. Because analyzing interrelations among variables is a major part of SEM and these interrelations are hypothesized to generate specific observed
covariance (or correlation) patterns among the variables,
SEM is also sometimes called covariance structure analysis.
In SEM, a variable can serve both as a source variable
(called an exogenous variable, which is analogous to an independent variable) and a result variable (called an endogenous variable, which is analogous to a dependent variable)
in a chain of causal hypotheses. This kind of variable is
often called a mediator. As an example, suppose that family environment has a direct impact on learning motivation
which, in turn, is hypothesized to affect achievement. In this
case motivation is a mediator between family environment
and achievement; it is the source variable for achievement
and the result variable for family environment. Furthermore,
feedback loops among variables (e.g., achievement can in
turn affect family environment in the example) are permissible in SEM, as are reciprocal effects (e.g., learning
motivation and achievement affect each other).1
In path analyses, observed variables are treated as if they
are measured without error, which is an assumption that
does not likely hold in most social and behavioral sciences.
When observed variables contain error, estimates of path coefficients may be biased in unpredictable ways, especially for
complex models (e.g., Bollen, 1989, p. 151178). Estimates
of reliability for the measured variables, if available, can be
incorporated into the model to fix their error variances (e.g.,
squared standard error of measurement via classical test
theory). Alternatively, if multiple observed variables that
are supposed to measure the same latent constructs are
34

available, then a measurement model can be used to separate the common variances of the observed variables from
their error variances thus correcting the coefficients in the
model for unreliability.2
Measurement Model
The measurement of latent variables originated from psychometric theories. Unobserved latent variables cannot be
measured directly but are indicated or inferred by responses
to a number of observable variables (indicators). Latent
constructs such as intelligence or reading ability are often
gauged by responses to a battery of items that are designed
to tap those constructs. Responses of a study participant to
those items are supposed to reflect where the participant
stands on the latent variable. Statistical techniques, such
as factor analysis, exploratory or confirmatory, have been
widely used to examine the number of latent constructs underlying the observed responses and to evaluate the adequacy
of individual items or variables as indicators for the latent
constructs they are supposed to measure.
The measurement model in SEM is evaluated through confirmatory factor analysis (CFA). CFA differs from exploratory
factor analysis (EFA) in that factor structures are hypothesized a priori and verified empirically rather than derived
from the data. EFA often allows all indicators to load on all
factors and does not permit correlated residuals. Solutions
for different number of factors are often examined in EFA
and the most sensible solution is interpreted. In contrast,
the number of factors in CFA is assumed to be known. In
SEM, these factors correspond to the latent constructs represented in the model. CFA allows an indicator to load on
multiple factors (if it is believed to measure multiple latent
constructs). It also allows residuals or errors to correlate (if
these indicators are believed to have common causes other
than the latent factors included in the model). Once the measurement model has been specified, structural relations of
the latent factors are then modeled essentially the same way
as they are in path models. The combination of CFA models
with structural path models on the latent constructs represents the general SEM framework in analyzing covariance
structures.
Other Models
Current developments in SEM include the modeling of mean
structures in addition to covariance structures, the modeling
of changes over time (growth models) and latent classes or
profiles, the modeling of data having nesting structures (e.g.,
students are nested within classes which, in turn, are nested
with schools; multilevel models), as well as the modeling of
nonlinear effects (e.g., interaction). Models can also be different for different groups or populations by analyzing multiple sample-specific models simultaneously (multiple sample
analysis). Moreover, sampling weights can be incorporated
for complex survey sampling designs. See Marcoulides and
Schumacker (2001) and Marcoulides and Moustaki (2002)
for more detailed discussions of the new developments in
SEM.
How Does SEM Work?
In general, every SEM analysis goes through the steps of
model specification, data collection, model estimation, model
Educational Measurement: Issues and Practice

evaluation, and (possibly) model modification. Issues pertaining to each of these steps are discussed below.
Model Specification
A sound model is theory based. Theory is based on findings in the literature, knowledge in the field, or ones educated guesses, from which causes and effects among variables
within the theory are specified. Models are often easily conceptualized and communicated in graphical forms. In these
graphical forms, a directional arrow () is universally used
to indicate a hypothesized causal direction. The variables
to which arrows are pointing are commonly termed endogenous variables (or dependent variables) and the variables
having no arrows pointing to them are called exogenous variables (or independent variables). Unexplained covariances
among variables are indicated by curved arrows ( ). Observed variables are commonly enclosed in rectangular boxes
and latent constructs are enclosed in circular or elliptical
shapes.
For example, suppose a group of researchers have developed a new measure to assess mathematics skills of preschool
children and would like to find out (a) whether the skill
scores measure a common construct called math ability and
(b) whether reading readiness (RR) has an influence on
math ability when age (measured in month) differences are
controlled for. The skill scores available are: counting aloud
(CA)count aloud as high as possible beginning with the
number 1; measurement (M)identify fundamental measurement concepts (e.g., taller, shorter, higher, lower) using
basic shapes; counting objects (CO)count sets of objects
and correctly identify the total number of objects in the
set; number naming (NN)read individual numbers (or
shapes) in isolation and rapidly identify the specific number (shape) being viewed; and pattern recognition (PR)
identify patterns using short sequences of basic shapes (i.e.,
circle, square, and triangle). These skill scores (indicators)
are hypothesized to indicate the strength of childrens latent math ability, with higher scores signaling stronger math
ability. Figure 1 presents the conceptual model.
The model in Figure 1 suggests that the five skill scores
on the right are supposedly results of latent math ability
(enclosed by an oval) and that the two exogenous observed
variables on the left (RR and age enclosed by rectangles) are
predictors of math ability. The two predictors (connected by
) are allowed to be correlated but their relationship is not
explained in the model. The latent math ability variable and
the five observed skill scores (enclosed by rectangles) are
endogenous in this example. The residual of the latent endogenous variable (residuals of structural equations are also
called disturbances) and the residuals (or errors) of the skill
variables are considered exogenous because their variances
CA
RR

M
MATH

CO

AGE

NN
PR

Structural part

Measurement part

FIGURE 1. Conceptual model of math ability.

Fall 2007

and interrelationships are unexplained in the model. The

residuals are indicated by arrows without sources in Figure 1.
The effects of RR and age on the five skill scores can also
be perceived to be mediated by the latent variable (math
ability). This model is an example of a multiple-indicator
multiple-cause model (or MIMIC for short, a special case of
general SEM model) in which the skill scores are the indicators and age as well as RR are the causes for the latent
variable.
Due to the flexibility in model specification, a variety of
models can be conceived. However, not all specified models
can be identified and estimated. Just like solving equations in
algebra where there cannot be more unknowns than knowns,
a basic principle of identification is that a model cannot have
a larger number of unknown parameters to be estimated than
the number of unique pieces of information provided by the
data (variances and covariances of observed variables for covariance structure models in which mean structures are not
analyzed).3 Because the scale of a latent variable is arbitrary,
another basic principle of identification is that all latent variables must be scaled so that their values can be interpreted.
These two principles are necessary for identification but they
are not sufficient. The issue of model identification is complex. Fortunately, there are some established rules that can
help researchers decide if a particular model of interest is
identified or not (e.g., Davis, 1993; Reilly & OBrien, 1996;
Rigdon, 1995).
When a model is identified, every model parameter can be
uniquely estimated. A model is said to be over-identified if it
contains fewer parameters to be estimated than the number
of variances and covariances, just-identified when it contains
the same number of parameters as the number of variances
and covariances, and under-identified if the number of variances and covariances is less than the number of parameters. Parameter estimates of an over-identified model are
unique given a certain estimation criterion (e.g., maximum
likelihood). All just-identified models fit the data perfectly
and have a unique set of parameter estimates. However, a
perfect model-data fit is not necessarily desirable in SEM.
First, sample data contain random error and a perfect-fitting
model may be fitting sampling errors. Second, because conceptually very different just-identified models produce the
same perfect empirical fit, the models cannot be evaluated
or compared by conventional means (model fit indices discussed below). When a model cannot be identified, either
some model parameters cannot be estimated or numerous
sets of parameter values can produce the same level of model
fit (as in under-identified models). In any event, results of
such models are not interpretable and the models require
re-specification.
Data Characteristics
Like conventional statistical techniques, score reliability and
validity should be considered in selecting measurement instruments for the constructs of interest and sample size
needs to be determined preferably based on power considerations. The sample size required to provide unbiased parameter estimates and accurate model fit information for SEM
models depends on model characteristics, such as model
size as well as score characteristics of measured variables,
such as score scale and distribution. For example, larger
models require larger samples to provide stable parameter
estimates, and larger samples are required for categorical
35

or non-normally distributed variables than for continuous

or normally distributed variables. Therefore, data collection
should come, if possible, after models of interest are specified
so that sample size can be determined a priori. Information
about variable distributions can be obtained based on a pilot
study or ones educated guess.
SEM is a large sample technique. That is, model estimation
and statistical inference or hypothesis testing regarding the
specified model and individual parameters are appropriate
only if sample size is not too small for the estimation method
chosen. A general rule of thumb is that the minimum sample
size should be no less than 200 (preferably no less than 400
especially when observed variables are not multivariate normally distributed) or 520 times the number of parameters to
be estimated, whichever is larger (e.g., Kline, 2005, pp. 111,
178). Larger models often contain larger number of model
parameters and hence demand larger sample sizes. Sample
size for SEM analysis can also be determined based on a priori power considerations. There are different approaches to
power estimation in SEM (e.g., MacCallum, Browne, & Sugawara, 1996 on the root mean square error of approximation
(RMSEA) method; Satorra & Saris, 1985; Yung & Bentler,
1999 on bootstrapping; Muthen & Muthen, 2002 on Monte
Carlo simulation). However, an extended discussion of each
is beyond the scope of this module.
Model Estimation4
A properly specified structural equation model often has
some fixed parameters and some free parameters to be estimated from the data. As an illustration, Figure 2 shows the
diagram of a conceptual model that predicts reading (READ)
and mathematics (MATH) latent ability from observed scores
from two intelligence scales, verbal comprehension (VC) and
perceptual organization (PO). The latent READ variable is
indicated by basic word reading (BW) and reading comprehension (RC) scores. The latent MATH variable is indicated
by calculation (CL) and reasoning (RE) scores. The visible
paths denoted by directional arrows (from VC and PO to
READ and MATH, from READ to BW and RC, and from MATH
to CL and RE) and curved arrows (between VC and PO, and
between residuals of READ and MATH) in the diagram are
free parameters of the model to be estimated, as are residual
variances of endogenous variables (READ, MATH, BW, RC,
CL, and RE) and variances of exogenous variables (VC and
PO). All other possible paths that are not shown (e.g., direct
paths from VC or PO to BW, RC, CL, or RE) are fixed to zero
and will not be estimated. As mentioned above, the scale of
a latent variable is arbitrary and has to be set. The scale of
a latent variable can be standardized by fixing its variance
to 1. Alternatively, a latent variable can take the scale of
one of its indicator variables by fixing the factor loading (the
BW
1
READ
RC

VC

PO

CL

MATH
RE

FIGURE 2. Conceptual model of math and reading.

36

value of the path from a latent variable to an indicator) of

one indicator to 1. In this example, the loading of BW on
READ and the loading of CL on MATH are fixed to 1 (i.e.,
they become fixed parameters). That is, when the parameter
value of a visible path is fixed to a constant, the parameter
is not estimated from the data.
Free parameters are estimated through iterative procedures to minimize a certain discrepancy or fit function
between the observed covariance matrix (data) and the
model-implied covariance matrix (model). Definitions of the
discrepancy function depend on specific methods used to
estimate the model parameters. A commonly used normal
theory discrepancy function is derived from the maximum
likelihood method. This estimation method assumes that the
observed variables are multivariate normally distributed or
there is no excessive kurtosis (i.e., same kurtosis as the
normal distribution) of the variables (Bollen, 1989, p. 417).5
The estimation of a model may fail to converge or the solutions provided may be improper. In the former case, SEM
software programs generally stop the estimation process and
issue an error message or warning. In the latter, parameter
estimates are provided but they are not interpretable because
some estimates are out of range (e.g., correlation greater
than 1, negative variance). These problems may result if a
model is ill specified (e.g., the model is not identified), the
data are problematic (e.g., sample size is too small, variables
are highly correlated, etc.), or both. Multicollinearity occurs when some variables are linearly dependent or strongly
correlated (e.g., bivariate correlation > .85). It causes similar estimation problems in SEM as in multiple regression.
Methods for detecting and solving multicollinearity problems established for multiple regression can also be applied
in SEM.
Model Evaluation
Once model parameters have been estimated, one would
like to make a dichotomous decision, either to retain or reject the hypothesized model. This is essentially a statistical
hypothesis-testing problem, with the null hypothesis being
that the model under consideration fits the data. The overall model goodness of fit is reflected by the magnitude of
discrepancy between the sample covariance matrix and the
covariance matrix implied by the model with the parameter
estimates (also referred to as the minimum of the fit function or F min ). Most measures of overall model goodness of
fit are functionally related to F min . The model test statistic
(N 1)F min , where N is the sample size, has a chi-square
distribution (i.e., it is a chi-square test) when the model is
correctly specified and can be used to test the null hypothesis
that the model fits the data. Unfortunately, this test statistic has been found to be extremely sensitive to sample size.
That is, the model may fit the data reasonably well but the
chi-square test may reject the model because of large sample
size.
In reaction to this sample size sensitivity problem, a variety of alternative goodness-of-fit indices have been developed
to supplement the chi-square statistic. All of these alternative indices attempt to adjust for the effect of sample size,
and many of them also take into account model degrees of
freedom, which is a proxy for model size. Two classes of alternative fit indices, incremental and absolute, have been
identified (e.g., Bollen, 1989, p. 269; Hu & Bentler, 1999).
Incremental fit indices measure the increase in fit relative
Educational Measurement: Issues and Practice

to a baseline model (often one in which all observed variables are uncorrelated). Examples of incremental fit indices
include normed fit index (NFI; Bentler & Bonett, 1980),
Tucker-Lewis index (TLI; Tucker & Lewis, 1973), relative
noncentrality index (RNI; McDonald & Marsh, 1990), and
comparative fit index (CFI; Bentler, 1989, 1990). Higher values of incremental fit indices indicate larger improvement
over the baseline model in fit. Values in the .90s (or more
recently .95) are generally accepted as indications of good
fit.
In contrast, absolute fit indices measure the extent to
which the specified model of interest reproduces the sample
covariance matrix. Examples of absolute fit indices include
Joreskog and Sorboms (1986) goodness-of-fit index (GFI)
and adjusted GFI (AGFI), standardized root mean square
residual (SRMR; Bentler, 1995), and the RMSEA (Steiger &
Lind, 1980). Higher values of GFI and AGFI as well as lower
values of SRMR and RMSEA indicate better model-data fit.
SEM software programs routinely report a handful of
goodness-of-fit indices. Some of these indices work better
than others under certain conditions. It is generally recommended that multiple indices be considered simultaneously
when overall model fit is evaluated. For instance, Hu and
Bentler (1999) proposed a 2-index strategy, that is, reporting SRMR along with one of the fit indices (e.g., RNI, CFI, or
RMSEA). The authors also suggested the following criteria
for an indication of good model-data fit using those indices:
RNI (or CFI) .95, SRMR .08, and RMSEA .06. Despite the sample size sensitivity problem with the chi-square
test, reporting the model chi-square value with its degrees of
freedom in addition to the other fit indices is recommended.
Because some solutions may be improper, it is prudent
for researchers to examine individual parameter estimates
as well as their estimated standard errors. Unreasonable
magnitude (e.g., correlation > 1) or direction (e.g., negative
variance) of parameter estimates or large standard error
estimates (relative to others that are on the same scale) are
some indications of possible improper solutions.
If a model fits the data well and the estimation solution
is deemed proper, individual parameter estimates can be interpreted and examined for statistical significance (whether
they are significantly different from zero). The test of individual parameter estimates for statistical significance is based

on the ratio of the parameter estimate to its standard error

estimate (often called z-value or t-value). As a rough reference, absolute value of this ratio greater than 1.96 may be
considered statistically significant at the .05 level. Although
the test is proper for unstandardized parameter estimates,
standardized estimates are often reported for ease of interpretation. In growth models and multiple-sample analyses
in which different variances over time or across samples
may be of theoretical interest, unstandardized estimates are
preferred.
As an example, Table 1 presents the simple descriptive
statistics of the variables for the math ability example (Figure 1), and Table 2 provides the parameter estimates (standardized and unstandardized) and their standard error estimates. This model fit the sample data reasonably well as
indicated by the selected overall goodness-of-fit statistics:
213 = 21.21, p = .069, RMSEA = .056 (<.06), CFI = .99
(>.95), SRMR = .032 (<.08). The model solution is considered proper because there are no out-of-range parameter
estimates and standard error estimates are of similar magnitude (see Table 2). All parameter estimates are considered
large (not likely zero) because the ratios formed by unstandardized parameter estimates to their standard errors (i.e.,
z-values or t-values) are greater than |2| (Kline, 2005, p. 41).
Standardized factor loadings in measurement models should
fall between 0 and 1 with higher values suggesting better
indications of the observed variables for the latent variable.
All standardized loadings in this example are in the neighborhood of .7, showing that they are satisfactory indicators
for the latent construct of math ability. Coefficients for the
structural paths are interpreted in the same way as regression coefficients. The standardized coefficient value of .46 for
the path from age to math ability suggests that as children
grow by one standard deviation of age in months (about 6.7
months), their math ability is expected to increase by .46
standard deviation holding RR constant. The standardized
value of .40 for the path from RR to math ability reveals that
for every standard deviation increase in RR, math ability
is expected to increase by .40 standard deviation, holding
age constant. The standardized residual variance of .50 for
the latent math variable indicates that approximately 50%
of variance in math is unexplained by age and RR. Similarly, standardized residual or error variances of the math

Table 1. Sample Correlation, Mean, and Standard Deviation for the Model
of Figure 1
Variables
Variables
Age
RR
CA
M
CO
NN
PR
Mean
SD

AGE

RR

1
.357
.382
.510
.439
.513
.372
50.340
6.706

1
.439
.405
.447
.475
.328
.440
1.023

CA

CO

NN

PR

.588
.512
.591
.564
.666
1.297

1
.604
.560
.531
.730
.855

1
.606
.443
.545
.952

1
.561
.625
.933

1
.624
1.196

Note: CA = counting aloud; M = measurement; CO = counting objects; NN = number naming; PR = pattern recognition; RR =
reading readiness; age is measured in months.

Fall 2007

37

Table 2. Parameter and Standard Error Estimates for the Model of Figure 1
Model Parameters

Standardized
Estimate

Unstandardized
Estimate

Standard
Error

.74
.77
.74
.80
.68
.46
.40

1.00a
.68
.73
.77
.84
.07
.38

.07
.08
.08
.10
.01
.07

.45
.41
.46
.36
.54
.50

.75
.30
.41
.32
.78
.46

.10
.04
.05
.05
.09
.09

.36

2.45

.56

Loadings/effects on MATH
CA
M
CO
NN
PR
Age
RR
Residual variances
CA
M
CO
NN
PR
MATH
Covariance
RR and age

Note: Table values are maximum likelihood estimates. CA = counting aloud; M = measurement; CO = counting objects; NN =
number naming; PR = pattern recognition; RR = reading readiness; age is measured in months.
a
Fixed parameter to set the scale of the latent variable.

indicator variables are taken as the percentages of their

variances unexplained by the latent variable.

A large modification index (>3.84) suggests that a large improvement in model fit as measured by chi-square can be
expected if a certain fixed parameter is freed. The decision
of freeing a fixed parameter is less likely affected by chance
if it is based on a large modification index as well as a large
expected parameter change value.
As an illustration, Table 3 shows the simple descriptive
statistics of the variables for the model of Figure 2, and
Table 4 provides the parameter estimates (standardized and
unstandardized) and their standard error estimates. Had
one restricted the residuals of the latent READ and MATH
variables to be uncorrelated, the model would not fit the sample data well as suggested by some of the overall model fit
indices: 26 = 45.30, p < .01, RMSEA = .17 (>.10), SRMR =
.078 (acceptable because it is < .08). The solution was also

Model Modification, Alternative Models,

and Equivalent Models
When the hypothesized model is rejected based on goodnessof-fit statistics, SEM researchers are often interested in finding an alternative model that fits the data. Post hoc modifications (or model trimming) of the model are often aided
by modification indices, sometimes in conjunction with the
expected parameter change statistics. Modification index estimates the magnitude of decrease in model chi-square (for
1 degrees of freedom) whereas expected parameter change
approximates the expected size of change in the parameter
estimate when a certain fixed parameter is freely estimated.

Table 3. Sample Correlation, Mean, and Standard Deviation for the Model
of Figure 2
Variables
Variables
VC
PO
BW
RC
CL
RE
Mean
SD

VC

PO

BW

RC

CL

RE

1
.704
.536
.682
.669
.743
89.810
15.234

1
.354
.515
.585
.618
92.347
18.463

1
.781
.560
.532

1
.657
.688

83.448
14.546

87.955
15.726

1
.781
85.320
15.366

1
91.160
15.092

Note: VC = verbal comprehension; PO = perceptual organization; BW = basic word reading; RC = reading comprehension; CL =
calculation; RE = reasoning.

38

Educational Measurement: Issues and Practice

Table 4. Parameter and Standard Error Estimates for the Model of Figure 2
Model Parameters
Loadings/effects on READ
BW
RC
VC
PO
Loadings/effects on MATH
CL
RE
VC
PO
Residual variances
BW
RC
CL
RE
READ
MATH
Covariances
VC and PO
Residuals of READ and MATH

Standardized
Estimate

Unstandardized
Estimate

Standard
Error

.79
.99
.64
.07

1.00a
1.35
.48
.04

.10
.07
.05

.85
.92
.64
.23

1.00a
1.05
.55
.16

.07
.06
.05

.38
.02
.27
.16
.52
.33

79.55
5.28
64.22
36.77
69.10
56.98

10.30
11.96
8.98
7.88
10.44
9.21

.70
.21

198.05
31.05

24.39
6.31

Note: Table values are maximum likelihood estimates. VC = verbal comprehension; PO = perceptual organization; BW = basic
word reading; RC = reading comprehension; CL = calculation; RE = reasoning.
a
Fixed parameter to set the scale of the latent variable.

improper because there was a negative error variance estimate. The modification index for the covariance between the
residuals of READ and MATH was 33.03 with unstandardized
expected parameter change of 29.44 (standardized expected
change = .20). There were other large modification indices.
However, freeing the residual covariance between READ and
MATH was deemed most justifiable because the relationship
between these two latent variables was not likely fully explained by the two intelligence subtests (VC and PO). The
modified model appeared to fit the data quite well ( 25 =
8.63, p = .12, RMSEA = .057, SRMR = .017). The actual chisquare change from 45.30 to 8.63 (i.e., 36.67) was slightly
different from the estimated change (33.03), as was the actual parameter change (31.05 vs. 29.44; standardized value =
.21 vs. .20). The differences between the actual and estimated
changes are slight in this illustration because only one parameter was changed. Because parameter estimates are not
independent of each other, the actual and expected changes
may be very different if multiple parameters are changed
simultaneously, or the order of change may matter if multiple parameters are changed one at a time. In other words,
different final models can potentially result when the same
initial model is modified by different analysts.
As a result, researchers are warned against making a large
number of changes and against making changes that are
not supported by strong substantive theories (e.g., Byrne,
1998, p. 126). Changes made based on modification indices
may not lead to the true model in a large variety of realistic situations (MacCallum, 1986; MacCallum, Roznowski, &
Necowitz, 1992). The likelihood of success of post hoc modification depends on several conditions: It is higher if the
initial model is close to the true model, the search continues even when a statistically plausible model is obtained, the
Fall 2007

search is restricted to paths that are theoretically justifiable,

and the sample size is large (MacCallum, 1986). Unfortunately, whether the initially hypothesized model is close to
the true model is never known in practice. Therefore, one
can never be certain that the modified model is closer to the
true model.
Moreover, post hoc modification changes the confirmatory
approach of SEM. Instead of confirming or disconfirming
a theoretical model, modification searches can easily turn
modeling into an exploratory expedition. The model that
results from such searches often capitalizes on chance idiosyncrasies of sample data and may not generalize to other
samples (e.g., Browne & Cudeck, 1989; Tomarken & Waller,
2003). Hence, not only is it important to explicitly account for
the specifications made post hoc (e.g., Tomarken & Waller,
2003), but it is also crucial to cross-validate the final model
with independent samples (e.g., Browne & Cudeck, 1989).
Rather than data-driven post hoc modifications, it is often more defensible to consider multiple alternative models
a priori. That is, multiple models (e.g., based on competing theories or different sides of an argument) should be
specified prior to model fitting and the best fitting model is
selected among the alternatives. Joreskog (1993) discussed
different modeling strategies more formally and referred to
the practice of post hoc modification as model generating,
the consideration of different models a priori as alternative
models, and the rejection of the misfit hypothesized model
as strictly confirmatory.
As models that are just-identified will fit the data perfectly regardless of the particular specifications, different
just-identified models (sub-models or the entire model) detailed for the same set of variables are considered equivalent.
Equivalent models may be very different in implications but
39

produce identical model-data fit. For instance, predicting

verbal ability from quantitative ability may be equivalent to
predicting quantitative ability from verbal ability or to equal
strength of reciprocal effects between verbal and quantitative ability. In other words, the direction of causal hypotheses
cannot be ruled out (or determined) on empirical grounds
using cross-sectional data but on theoretical foundations, experimental control, or time precedence if longitudinal data
are available. See MacCallum, Wegener, Uchino, and Fabrigar (1993) and Williams, Bozdogan, and Aiman-Smith (1996)
for more detailed discussions of the problems and implications of equivalent models. Researchers are encouraged to
consider different models that may be empirically equivalent
to their selected final model(s) before they make any substantial claims. See Lee and Hershberger (1990) for ideas on
generating equivalent models.
Causal Relations
Although SEM allows the testing of causal hypotheses, a well
fitting SEM model does not and cannot prove causal relations without satisfying the necessary conditions for causal
inference, partly because of the problems of equivalent models discussed above. The conditions necessary to establish
causal relations include time precedence and robust relationship in the presence or absence of other variables (see
Kenny, 1979, and Pearl, 2000, for more detailed discussions
of causality). A selected well-fitting model in SEM is like a
retained null hypothesis in conventional hypothesis testing.
It remains plausible among perhaps many other models that
are not tested but may produce the same or better level of fit.
SEM users are cautioned not to make unwarranted causal
claims. Replications of findings with independent samples
are essential especially if the models are obtained based on
post hoc modifications. Moreover, if the models are intended
to be used in predicting future behaviors, their utility should
be evaluated in that context.
Software Programs
Most SEM analyses are conducted using one of the specialized SEM software programs. However, there are many options, and the choice is not always easy. Below is a list of the
commonly used programs for SEM. Special features of each
program are briefly discussed. It is important to note that this
list of programs and their associated features is by no means
comprehensive. This is a rapidly changing area and new
features are regularly added to the programs. Readers are
encouraged to consult the web sites of software publishers
for more detailed information and current developments.
LISREL
LISREL (linear structural relationships) is one of the earliest SEM programs and perhaps the most frequently referenced program in SEM articles. Its version 8 (Joreskog
& Sorbom, 1996a, 1996b) has three components: PRELIS,
SIMPLIS, and LISREL. PRELIS (pre-LISREL) is used in the
data preparation stage when raw data are available. Its main
functions include checking distributional assumptions, such
as univariate and multivariate normality, imputing data for
missing observations, and calculating summary statistics,
such as Pearson covariances for continuous variables, polychoric or polyserial correlations for categorical variables,
40

means, or asymptotic covariance matrix of variances and covariances (required for asymptotically distribution-free estimator or Satorra and Bentlers scaled chi-square and robust
standard errors; see footnote 5). PRELIS can be used as a
stand-alone program or in conjunction with other programs.
Summary statistics or raw data can be read by SIMPLIS or
LISREL for the estimation of SEM models. The LISREL syntax requires the understanding of matrix notation while the
SIMPLIS syntax is equation-based and uses variable names
defined by users. Both LISREL and SIMPLIS syntax can be
built through interactive LISREL by entering information for
the model construction wizards. Alternatively, syntax can be
built by drawing the models on the Path Diagram screen.
LISREL 8.7 allows the analysis of multilevel models for hierarchical data in addition to the core models. A free student
version of the program, which has the same features as the
full version but limits the number of observed variables to
12, is available from the web site of Scientific Software International, Inc. (http://www.ssicentral.com). This web site
also offers a list of illustrative examples of LISRELs basic
and new features.
EQS
Version 6 (Bentler, 2002; Bentler & Wu, 2002) of EQS (Equations) provides many general statistical functions including descriptive statistics, t-test, ANOVA, multiple regression,
nonparametric statistical analysis, and EFA. Various data exploration plots, such as scatter plot, histogram, and matrix
plot are readily available in EQS for users to gain intuitive
insights into modeling problems. Similar to LISREL, EQS
allows different ways of writing syntax for model specification. The program can generate syntax through the available
templates under the Build_EQS menu, which prompts the
user to enter information regarding the model and data for
analysis, or through the Diagrammer, which allows the user
to draw the model. Unlike LISREL, however, data screening
(information about missing pattern and distribution of observed variables) and model estimation are performed in one
run in EQS when raw data are available. Model-based imputation that relies on a predictive distribution of the missing
data is also available in EQS. Moreover, EQS generates a
number of alternative model chi-square statistics for nonnormal or categorical data when raw data are available. The
program can also estimate multilevel models for hierarchical
data. Visit http://www.mvsoft.com for a comprehensive list
of EQSs basic functions and notable features.
Mplus
Version 3 (Muthen & Muthen, 19982004) of the Mplus program includes a Base program and three add-on modules.
The Mplus Base program can analyze almost all single-level
models that can be estimated by other SEM programs. Unlike
LISREL or EQS, Mplus version 3 is mostly syntax-driven and
does not produce model diagrams. Users can interact with the
Mplus Base program through a language generator wizard,
which prompts users to enter data information and select the
estimation and output options. Mplus then converts the information into its program-specific syntax. However, users have
to supply the model specification in Mplus language themselves. Mplus Base also offers a robust option for non-normal
data and a special full-information maximum likelihood estimation method for missing data (see footnote 4). With the
Educational Measurement: Issues and Practice

add-on modules, Mplus can analyze multilevel models and

models with latent categorical variables, such as latent class
and latent profile analysis. The modeling of latent categorical
variables in Mplus is so far unrivaled by other programs. The
official web site of Mplus (http://www.statmodel.com) offers
a comprehensive list of resources including basic features of
the program, illustrative examples, online training courses,
and a discussion forum for users.
Amos
Amos (analysis of moment structure) version 5 (Arbuckle,
2003) is distributed with SPSS (SPSS, Inc., 2006). It has
two components: Amos Graphics and Amos Basic. Similar
to the LISREL Path Diagram and SIMPLIS syntax, respectively, Amos Graphics permits the specification of models by
diagram drawing whereas Amos Basic allows the specification from equation statements. A notable feature of Amos is
its capability for producing bootstrapped standard error estimates and confidence intervals for parameter estimates.
An alternative full-information maximum likelihood estimation method for missing data is also available in Amos.
The program is available at http://www.smallwaters.com or
http://www.spss.com/amos/.
Mx
Mx (Matrix) version 6 (Neale, Boker, Xie, & Maes, 2003) is
a free program downloadable from http://www.vcu.edu/mx/.
The Mx Graph version is for Microsoft Windows users. Users
can provide model and data information through the Mx
programming language. Alternatively, models can be drawn
in the drawing editor of the Mx Graph version and submitted
for analysis. Mx Graph can calculate confidence intervals
and statistical power for parameter estimates. Like Amos and
Mplus, a special form of full-information maximum likelihood
estimation is available for missing data in Mx.
Others
In addition to SPSS, several other general statistical software packages offer built-in routines or procedures that are
designed for SEM analyses. They include the CALIS (covariance analysis and linear structural equations) procedure of SAS (SAS Institute Inc., 2000; http://www.sas.com/),
the RAMONA (reticular action model or near approximation) module of SYSTAT (Systat Software, Inc., 2002;
http://www.systat.com/), and SEPATH (structural equation
modeling and path analysis) of Statistica (StatSoft, Inc.,
2003; http://www.statsoft.com/products/advanced.html).
Summary
This module has provided a cursory tour of SEM. Despite
its brevity, most relevant and important considerations in
applying SEM have been highlighted. Most specialized SEM
software programs have become very user-friendly, which can
be either a blessing or a curse. Many SEM novices believe
that SEM analysis is nothing more than drawing a diagram
and pressing a button. The goal of this module is to alert
readers to the complexity of SEM. The journey in SEM can
be exciting because of its versatility and yet frustrating because the first ride in SEM analysis is not necessarily smooth
for everyone. Some may run into data problems, such as
missing data, non-normality of observed variables, or multiFall 2007

collinearity; estimation problems that could be due to data

problems or identification problems in model specification;
or interpretation problems due to unreasonable estimates.
When problems arise, SEM users will need to know how to
troubleshoot systematically and ultimately solve the problems. Although individual problems vary, there are some
common sources and potential solutions informed by the literature. For a rather comprehensive list of references by topics, visit http://www.upa.pdx.edu/IOA/newsom/semrefs.htm.
Serious SEM users should stay abreast of the current developments as SEM is still growing in its estimation techniques
and expanding in its applications.
Self-Test
1. List at least two advantages of structural equation models over regular ANOVA and regression models.
2. In a conventional SEM diagram, Y1Y2 means:
A.
B.
C.
D.

Y2 is an exogenous variable.
Variation in Y2 is affected by variation in Y1.
Variation in Y1 is explained within the model.
Y1 and Y2 are correlated.

3. What is NOT included in a path model?

A.
B.
C.
D.

Exogenous variable
Endogenous variable
Latent variable
Disturbance

4. What is a mediator in a path model?

5. Which of the following statements regarding path models is NOT correct?
A. It is an extension of multiple regressions.
B. It can be used to examine mediation effects.
C. Measurement errors are well accounted for in path
models.
D. It can be used to examine causal hypotheses between independent and dependent variables.
6. A researcher wants to study the effect of SES on students classroom behavior and would like to find out
whether SES affects classroom behavior directly or
indirectly by way of its direct effect on academic
achievement. Which of the following models is the most
appropriate for this study?
A.
B.
C.
D.

Confirmatory factor analysis model

Path model
Growth model
Multiple-sample model

7. What are some possible ways of accounting for measurement errors of observed variables in SEM?
8. What does it mean for a model to be identified?
A. The model is theory based.
B. Fit indices for the model are all satisfactory.
C. An SEM program successfully produces a solution
for the model.
D. There exists a unique solution for every free parameter in the model.
9. In order for a model to be identified, we must set the
variances of the latent variables to 1. T/F
41

10. The model test statistic, (N 1)F min , has a chi-square

distribution, where N is the sample size and F min is
minimum of the fit function. T/F
11. Even if a model fits the data quite well, it is still very
likely that we will get a significant chi-square value.
T/F
12. Which of the following model fit indices is the most
sensitive to sample size?
A.
B.
C.
D.

Chi-square
RMSEA
SRMR
CFI

13. Which of the following most likely suggests bad model

fit?
A.
B.
C.
D.

High values in incremental fit indices

High value in GFI
High value in model chi-square
High value in RMSEA

14. Which of the following suggests improper solution to

the model?
A.
B.
C.
D.

Nonsignificant residual variance

Negative disturbance variance
Negative covariance
Small correlation

15. Which of the following statements about modification

index is true?
A. It indicates the amount of change in parameter
estimates if we free a certain fixed parameter.
B. Model modification decisions must be based on
modification index values.
C. All parameters that have modification index values
larger than 3.84 should be freed.
D. It indicates the amount of change in chi-square if
we free a certain fixed parameter.
16. One of the advantages of using SEM is that causal relations among variables can be established using crosssectional data. T/F
Key to Self-Test
1. SEM can include both observed and latent variables, and
relationships among latent constructs can be examined;
several dependent variables can be studied in a single SEM
analysis; equation residuals can be correlated in SEM.
2. B
3. C
4. A mediator is a variable that serves as both a source variable
and a result variable. In other words, it affects, and is also
affected by, some other variables within the model.
5. C
6. B
7. There are two possible ways: (1) incorporate reliability coefficients, if applicable, by fixing error variances to squared
standard errors of measurement; (2) incorporate measurement models when multiple indicators of the constructs are
available.
8. D
9. F (The scale of a latent variable can be set in two ways:
standardizing or fixing the factor loading of one indicator
to 1.)
42

10. F (It has a chi-square distribution only when the model is

correctly specified and other model assumptions are satisfied.)
11. T (Holding model-data discrepancy constant, model chisquare value increases as sample size increases.)
12. A
13. D (Both high values of model chi-square and RMSEA indicate bad model fit but chi-square is also affected by sample
size, so the best option is RMSEA.)
14. B
15. D
16. F (There are certain necessary conditions for causal relations that are not likely satisfied by cross-sectional studies.)

Acknowledgment
We thank James DiPerna, Paul Morgan, and Marley Watkins for
sharing the data used in the illustrative examples, as well as
Hoi Suen and the anonymous reviewers for their constructive
comments on a draft of this article.

Notes
1
When a model involves feedback or reciprocal relations or
correlated residuals, it is said to be nonrecursive; otherwise
the model is recursive. The distinction between recursive and
nonrecursive models is important for model identification
and estimation.
2
The term error variance is often used interchangeably
with unique variance (that which is not common variance). In measurement theory, unique variance consists of
both true unique variance and measurement error variance, and only measurement error variance is considered
the source of unreliability. Because the two components of
unique variance are not separately estimated in measurement models, they are simply called error variance.
3
This principle of identification in SEM is also known as
the t-rule (Bollen, 1989, p. 93, p. 242). Given the number
of p observed variables in any covariance-structure model,
the number of variances and covariances is p(p + 1)/2. The
parameters to be estimated include factor loadings of measurement models, path coefficients of structural relations,
and variances and covariances of exogenous variables including those of residuals. In the math ability example, the
number of observed variances and covariances is 7(8)/2 =
28 and the number of parameters to be estimated is 15
(5 loadings + 2 path coefficients + 3 variancecovariance
among predictors + 6 residual variances 1 to set the scale
of the latent factor). Because 28 is greater than 15, the model
satisfies the t-rule.
4
It is not uncommon to have missing observations in any
research study. Provided data are missing completely at random, common ways of handling missing data, such as imputation, pairwise deletion, or listwise deletion can be applied.
However, pairwise deletion may create estimation problems
for SEM because a covariance matrix that is computed based
on different numbers of cases may be singular or some estimates may be out-of-bound. Recent versions of some SEM
software programs offer a special maximum likelihood estimation method (referred to as full-information maximum
likelihood), which uses all available data for estimation and
requires no imputation. This option is logically appealing
because there is no need to make additional assumptions for
imputation and there is no loss of observations. It has also
Educational Measurement: Issues and Practice

been found to work better than listwise deletion in simulation

studies (Kline, 2005, p. 56).
5
When this distributional assumption is violated, parameter estimates may still be unbiased (if the proper covariance
or correlation matrix is analyzed, that is, Pearson for continuous variables, polychoric, or polyserial correlation when
categorical variable is involved) but their estimated standard errors will likely be underestimated and the model
chi-square statistic will be inflated. In other words, when
the distributional assumption is violated, statistical inference may be incorrect. Other estimation methods that do
not make distributional assumptions (e.g., the asymptotically distribution-free estimator or weighed least squares
based on the full asymptotic variancecovariance matrix of
the estimated variances and covariances) are available but
they often require unrealistically large sample sizes to work
satisfactorily (N > 1,000). When the sample size is not that
large, a viable alternative is to request robust estimation
from some SEM software programs (e.g., LISREL8, EQS6,
Mplus3), which provides some adjustment to the chi-square
statistic and standard error estimates based on the severity
of non-normality (Satorra & Bentler, 1994). Statistical inference based on adjusted statistics has been found to work
quite satisfactorily provided sample size is not too small.
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