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A Structural Analysis of the Correlated Random Coefficient Wage Regression Model

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  • Christian Belzil

    ()

  • Jörgen Hansen

    ()

Abstract

We estimate a finite mixture dynamic programming model of schooling decisions in which the log wage regression function is set in a random coefficient framework. The model allows for absolute and comparative advantages in the labor market and assumes that the population is composed of 8 unknown types. Overall, labor market skills (as opposed to taste for schooling) appear to be the prime factor explaining schooling attainments. The estimates indicate a higher cross-sectional variance in the returns to experience than in the returns to schooling. From various simulations, we find that the sub-population mostly affected by a counterfactual change in the utility of attending school is composed of individuals who have any combination of some of the following attributes; absolute advantages in the labor market, high returns to experience, low utility of attending school and relatively low returns to schooling. Unlike what is often postulated in the average treatment effect literature, the weak correlation (unconditional) between the returns to schooling and the individual reactions to treatment is not sufficient to reconcile the discrepancy between OLS and IV estimates of the returns to schooling often found in the literature. Nous estimons un modèle de programmation dynamique des choix en éducation dans lequel la fonction de régression logarithmique du salaire dépend de coefficients aléatoires. Ce modèle permet de tenir compte des avantages absolus et comparés des individus sur le marché de l'emploi et part du principe que la population est composée de huit types inconnus. Dans l'ensemble, les qualifications sur le marché du travail (par opposition au goût de s'instruire) semblent être le principal facteur permettant d'expliquer les niveaux de scolarité. Nos estimations indiquent une plus forte variance transversale dans les rendements de l'éducation. À partir de plusieurs simulations, nous trouvons que la sous-population qui se trouve le plus affecté par un changement contrefactuel dans le niveau d'utilité de la fréquentation scolaire est celle composée d'individus possédant une combinaison des attributs suivants : avantage absolu sur le marché du travail, rendements élevés de l'expérience, faible niveau d'utilité par rapport à la fréquentation scolaire et rendements de l'éducation relativement bas. Contrairement à ce qui est souvent postulé dans la littérature, la corrélation faible (non conditionnelle) entre les rendements de l'éducation et les réactions individuelles aux traitements n'est pas une condition suffisante pour réconcilier les différences que l'on retrouve souvent dans la littérature entre les résultats des estimations par MCO et par VI des rendements de l'éducation.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2002s-07.

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Date of creation: 01 Jan 2002
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Handle: RePEc:cir:cirwor:2002s-07

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Keywords: Random Coefficient; Returns to Schooling; Comparative Advantages; Dynamic Programming; Dynamic Self-Selection; Coefficients aléatoires; Rendements de l'éducation; Avantages comparés; Programmation dynamique; Auto-sélection dynamique;

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