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Counterfactual distributions of wages via quantile regression with endogeneity

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Author Info

  • Elena Martínez Sanchis

    ()
    (Dpto. Fundamentos del Análisis Económico)

  • Ilker Kandemir

    ()
    (Department of Economics)

  • Juan Mora López

    ()
    (Universidad de Alicante)

Registered author(s):

    Abstract

    Counterfactual decompositions allow the researcher to analyze the changes in wage distributions by discriminating between the effect of changes in the population characteristics and the effect of changes in returns to these characteristics. In this paper, counterfactual distributions are derived by recovering the conditional distribution via a set of quantile regressions, and correcting for the endogeneity of schooling decisions using a control function approach. Our proposal enables us to isolate the effect on the wage distribution of changes in both the conditional and unconditional distribution of schooling and changes in the distribution of unobserved ability. This methodology is used to analyze the sources of the changes in wage distribution that took place in the United States between 1983 and 1993, using proximity to college for different parental background as instruments. Our results show that the change in the distribution of ability had a negative effect on wages at the low quantiles, which almost compensates the positive effect of the change in the schooling distribution over this period. It is also found that the impact on wages of changes in the conditional distribution of unobserved ability is larger than the impact of changes in the conditional distribution of distance to college.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2011-25.pdf
    File Function: Fisrt version / Primera version, 2011
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-25.

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    Length: 52 pages
    Date of creation: Dec 2011
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2011-25

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    Related research

    Keywords: Counterfactual Decomposition; Wage Inequality; Quantile Regression; Endogeneity;

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    References

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    Citations

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    Cited by:
    1. Raquel Carrasco & Juan F. Jimeno & A. Carolina Ortega, 2011. "Accounting for changes in the Spanish wage distribution: the role of employment Composition effects," Banco de Espa�a Working Papers 1120, Banco de Espa�a.
    2. Martinez-Sanchis, Elena & Mora, Juan & Kandemir, Ilker, 2012. "Counterfactual distributions of wages via quantile regression with endogeneity," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3212-3229.

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