A Cautionary Note on Using Industry Affiliation to Predict Income
AbstractMany literatures investigate the causal impact of income on economic outcomes, for example in the context of intergenerational transmission or well-being and health. Some studies have proposed to use employer wage differentials and in particular industry affiliation as an instrument for income. We demonstrate that industry affiliation is correlated with fixed individual characteristics, specifically parents' education and own height, conditional on the covariates typically controlled for in these studies. These results suggest that there is selection into industries based on unobservables. As a result the exclusion restriction in many IV studies of this type is likely violated.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9131.
Date of creation: Sep 2012
Date of revision:
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Other versions of this item:
- Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," CEP Discussion Papers dp1163, Centre for Economic Performance, LSE.
- Pischke, Jörn-Steffen & Schwandt, Hannes, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," IZA Discussion Papers 6840, Institute for the Study of Labor (IZA).
- Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," NBER Working Papers 18384, National Bureau of Economic Research, Inc.
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
- I3 - Health, Education, and Welfare - - Welfare and Poverty
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
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- Albrecht Ritschl, 2012.
"The German Transfer Problem, 1920-1933: A Sovereign Debt Perspective,"
CEP Discussion Papers
dp1155, Centre for Economic Performance, LSE.
- Ritschl, Albrecht, 2012. "The German Transfer Problem, 1920-1933: A Sovereign Debt Perspective," CEPR Discussion Papers 9062, C.E.P.R. Discussion Papers.
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