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Earnings returns to education, experience and health: Evidence from EU-SILC

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  • Yolanda Pena-Boquete

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  • Manuel Flores
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    Abstract

    Using individual-level panel data from European Union Statistics on Income and Living Conditions (2007-2010) we explore to what extend wage differentials across European countries are explained by differences in education, actual experience and health. The human capital literature suggests an important role for these variables in explaining wage patterns. However, while there is a wide support in the empirical literature of the positive impacts of education and experience on wages, the relationship between wages and health is less clear-cut. What makes it most difficult to disentangle these effects is that education, experience, health and wages are interrelated. To deal with these issues, we implement an Efficient Generalized Instrumental Variable estimator. This procedure allows simultaneous control for the correlation between regressors and unobserved individual effects (as fixed effects) and to identify the estimates for the time-invariant covariates, such as education, as a random effects estimator. Furthermore, it eliminates the uncertainty associated with the choice of instruments, since exogenous included variables, and their means over time, are used as efficient instruments. Our preliminary results suggest that taking this possible unobserved heterogeneity in education and experience into account does not significantly affect the estimation results. Instead, correcting for possible unobserved heterogeneity and/or measurement error in SRH status changes the estimation results dramatically. Still, we find that for both men and women in Europe education, actual experience and health have positive impacts on wages.

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    Bibliographic Info

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa13p1169.

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    Date of creation: Nov 2013
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    Handle: RePEc:wiw:wiwrsa:ersa13p1169

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    2. Sarah Brown & Jennifer Roberts & Karl Taylor, 2010. "Reservation wages, labour market participation and health," Journal of the Royal Statistical Society Series A, Royal Statistical Society, Royal Statistical Society, vol. 173(3), pages 501-529.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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    8. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number minc74-1.
    9. Kapteyn, A. & Smith, J.P. & Soest, A.H.O. van, 2007. "Vignettes and self-reports of work disability in the United States and the Netherlands," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-210598, Tilburg University.
    10. Lixin Cai, 2007. "Effects of Health on Wages of Australian Men," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2007n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    11. Haveman, Robert & Wolfe, Barbara & Kreider, Brent & Stone, Mark, 1994. "Market work, wages, and men's health," Journal of Health Economics, Elsevier, Elsevier, vol. 13(2), pages 163-182, July.
    12. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 26(1), pages 106-138.
    13. Lee, Lung-Fei, 1982. "Health and Wage: A Simultaneous Equation Model with Multiple Discrete Indicators," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 199-221, February.
    14. Crossley, Thomas F. & Kennedy, Steven, 2002. "The reliability of self-assessed health status," Journal of Health Economics, Elsevier, Elsevier, vol. 21(4), pages 643-658, July.
    15. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
    16. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, National Bureau of Economic Research, Inc, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
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