Measurement Error in Human Capital and the Black-White Wage Gap
AbstractProxy variables are frequently used in economics to control for unavailable variables in a linear regression setting. For example, AFQT scores have been used to control for human capital accumulation in measuring black-white wage differentials. This practice may bias the coefficient estimates for the correctly measured variables as well. This paper models proxy variables as a measurement error process and derives bounds for the coefficients on the correctly measured variables under a variety of assumptions. The results show that the coefficient on race in a linear regression is an overstatement of the actual black-white wage gap. Sensitivity analysis suggests that if human capital could be correctly measured it would be unlikely that the coefficient on black would be negative. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics and Statistics.
Volume (Year): 85 (2003)
Issue (Month): 3 (August)
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- Houseworth, Christina & Fisher, Jonathan, 2011.
"The Reverse Wage Gap among Educated White and Black Women,"
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- Jonathan Fisher & Christina Houseworth, 2012. "The reverse wage gap among educated White and Black women," Journal of Economic Inequality, Springer, vol. 10(4), pages 449-470, December.
- Eirini-Christina Saloniki & Amanda Gosling, 2012. "Point identification in the presence of measurement error in discrete variables: application - wages and disability," Studies in Economics 1214, Department of Economics, University of Kent.
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