This paper considers nonparametric identification and estimation of a generalized Roy model that includes a non-pecuniary component of utility associated with each choice alternative. Previous work has found that, without parametric restrictions or the availability of covariates, all of the useful content of a cross-sectional dataset is absorbed in a restrictive specification of Roy sorting behavior that imposes independence on wage draws. While this is true, we demonstrate that it is also possible to identify (under relatively innocuous assumptions and without the use of covariates) a common non-pecuniary component of utility associated with each choice alternative. We develop nonparametric estimators corresponding to two alternative assumptions under which we prove identification, derive asymptotic properties, and illustrate small sample properties with a series of Monte Carlo experiments. We demonstrate the usefulness of one of these estimators with an empirical application. Micro data from the 2000 Census are used to calculate the returns to a college education. If high-school and college graduates face different costs of migration, this would be reflected in different degrees of Roy-sorting-induced bias in their observed wage distributions. Correcting for this bias, the observed returns to a college degree are cut in half.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13949.
Length: Date of creation: Apr 2008 Date of revision: Handle: RePEc:nbr:nberwo:13949
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Find related papers by JEL classification: C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
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