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Wage inequality and returns to schooling in Europe: a semi-parametric approach using EU-SILC data

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  • Biagetti, Marco
  • Scicchitano, Sergio

Abstract

In this paper we apply a semi-parametric approach (quantile regression - QR) to the last 2007 wave of the EU-SILC data set, in order to explore the connection between education and wage inequality in 8 European countries. We find that wages increase with education and this holds true across the whole distribution. Furthermore, this effect is generally more important at the highest quantiles of the distribution than at the lowest, implying that schooling increases wage dispersion. This evidence is found to be rather robust as showed through tests of linear hypothesis. We also corroborate the idea that, although OLS coefficients estimates are substantially in line with the QR’s, the former technique really misleads relevant information about cross-countries heterogeneity in the impact of education on within group inequality at different points of the wage distribution. Hence this paper confirms that a semi-parametric QR approach is more interesting, as well as more appropriate, because it measures the wage effect of education at different quantiles, thus describing relevant cross-countries changes or bounces not only in the location, but also in the shape of the distribution.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19060.

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Date of creation: 28 Nov 2009
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Handle: RePEc:pra:mprapa:19060

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Keywords: Returns to education; Wage inequality; Quantile regression; Europe;

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References

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  1. Seamus McGuinness & Frances McGinnity & Philip J. O'Connell, 2008. "Changing Returns to Education During a Boom? The Case of Ireland," Papers WP227, Economic and Social Research Institute (ESRI).
  2. Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
  3. Andini, Corrado, 2007. "Within-Groups Wage Inequality and Schooling: Further Evidence for Portugal," IZA Discussion Papers 2828, Institute for the Study of Labor (IZA).
  4. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
  5. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, vol. 11(3), pages 355-371, June.
  6. Corrado Andini, 2007. "Returns to education and wage equations: a dynamic approach," Applied Economics Letters, Taylor & Francis Journals, vol. 14(8), pages 577-579.
  7. Budría, Santiago & Pereira, Pedro T., 2005. "Educational Qualifications and Wage Inequality: Evidence for Europe," IZA Discussion Papers 1763, Institute for the Study of Labor (IZA).
  8. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
  9. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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Cited by:
  1. Mendolicchio, Concetta & Rhein, Thomas, 2011. "The gender gap of returns on education across West European countries," IAB Discussion Paper 201120, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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