Work experience as a source of specification errorin earnings models: implications for genderwage decompositions
AbstractThis paper models the bias from using potential vs actual experience in log wage models. The nature of the problem is best viewed as specification error as opposed to classical errors-in-variables.We correct for the discrepancy between potential and actual work experience and create a predicted measure of work experience. We use the 1979 National Longitudinal Survey of Youth and the Panel Study of Income Dynamics and extend our findings to the Integrated Public Use Microdata Sample. Our results suggest that potential experience biases the effects of schooling and the rates of return to labor market experience. Using such a measure in earnings models underestimates the explained portion of the male–female wage gap.We are able to separately identify the decomposition biases associated with incorrect experience measures and biased parameter estimates.
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Bibliographic InfoPaper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-6.
Length: 37 pages
Date of creation: 05 Nov 2007
Date of revision:
Publication status: Published
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More information through EDIRC
Experience; Decomposition; Specification error;
Other versions of this item:
- Tracy Regan & Ronald Oaxaca, 2009. "Work experience as a source of specification error in earnings models: implications for gender wage decompositions," Journal of Population Economics, Springer, vol. 22(2), pages 463-499, April.
- Regan, Tracy L. & Oaxaca, Ronald L., 2006. "Work Experience as a Source of Specification Error in Earnings Models: Implications for Gender Wage Decompositions," IZA Discussion Papers 1920, Institute for the Study of Labor (IZA).
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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