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On the Specification of Mincerian Wage Regressions with Heterogeneity, Non-Linearity, Non-Separability, and Heteroskedasticity

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Author Info
Belzil, Christian () (GATE, University of Lyon 2, CIRANO and IZA Bonn)

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Abstract

Using panel data taken from the NLSY, I perform the joint estimation of i) a reduced-form dynamic model of the transition from one grade level to the next with observed and unobserved heterogeneity, and ii) a flexible version of the celebrated Mincerian wage regression with skill heterogeneity, non-linearity in schooling, non-separability between the effects of schooling and experience and heteroskedasticity (after conditioning on unobserved skills). The model rejects all simplifying assumptions common in the empirical literature. In particular, the log wage regression is highly convex, even after conditioning on unobserved and observed skills. Skill heterogeneity is also found to be over-estimated when non-linearity is ignored. After conditioning on skill heterogeneity, schooling has a causal effect on wage growth. I find that estimates obtained in a standard framework (assuming separability) may underestimate the returns to schooling upon labor market entrance by as much as 15%. Finally, I find that the variance of the stochastic wage shock decreases with accumulated experience but is more or less independent of schooling.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1083.

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Length: 45 pages
Date of creation: Mar 2004
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Handle: RePEc:iza:izadps:dp1083

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Related research
Keywords: Mincer regressions; heterogeneity; random coefficient models; returns to schooling; returns to experience;

Find related papers by JEL classification:
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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References listed on IDEAS
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  1. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April. [Downloadable!] (restricted)
  2. Robert M. Sauer, 2004. "Educational Financing and Lifetime Earnings," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 1189-1216, October. [Downloadable!] (restricted)
  3. Fortin, N.M. & Lemieux, T., 1996. "Rank Regressions, Wage Distributions and the Gender Gap," Cahiers de recherche 9607, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    Other versions:
  4. Costas Megir & Martin Palme, 2001. "The effect of a social experiment in education," CEE Discussion Papers 0014, Centre for the Economics of Education, LSE. [Downloadable!]
  5. Costas Meghir & Mårten Palme, 2001. "The effect of a social experiment in education," IFS Working Papers W01/11, Institute for Fiscal Studies.
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  6. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1993. "Hierarchies and compensation: A case study," European Economic Review, Elsevier, vol. 37(2-3), pages 366-378, April. [Downloadable!] (restricted)
  8. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    Other versions:
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