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Over-Identification Tests in Earnings Functions with Fixed Effects


  • Angrist, Joshua D
  • Newey, Whitney K


The goodness-of-fit statistic for fixed effects models is shown to simplify to the degrees of freedom times the R(superscript "2") from a regression of analysis of covariance residuals on right hand side variables. This result is applied to test models for union wage effects. Identification and estimation of the return to schooling in models with fixed effects is also discussed. Analysis of covariance estimates of the returns to schooling are precisely estimated and roughly twice the size of ordinary least squares estimates. The goodness-of-fit test suggests that the fixed effects assumption is not appropriate for human capital earnings functions.

Suggested Citation

  • Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-323, July.
  • Handle: RePEc:bes:jnlbes:v:9:y:1991:i:3:p:317-23

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    References listed on IDEAS

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    Cited by:

    1. Alan B. Krueger & Mikael Lindahl, 1998. "Education for Growth in Sweden and the World," Working Papers 790, Princeton University, Department of Economics, Industrial Relations Section..
    2. Paul Schultz, T., 2003. "Wage rentals for reproducible human capital: evidence from Ghana and the Ivory Coast," Economics & Human Biology, Elsevier, vol. 1(3), pages 331-366, December.
    3. Maluccio, John A., 1998. "Endogeneity of schooling in the wage function," FCND discussion papers 54, International Food Policy Research Institute (IFPRI).
    4. Park, Seonyoung, 2011. "Returning to school for higher returns," Economics of Education Review, Elsevier, vol. 30(6), pages 1215-1228.
    5. Baltagi, Badi H. & Bresson, Georges & Pirotte, Alain, 2009. "Testing the fixed effects restrictions? A Monte Carlo study of Chamberlain's Minimum Chi-Squared test," Statistics & Probability Letters, Elsevier, vol. 79(10), pages 1358-1362, May.
    6. Brownstone, David & Valletta, Robert G, 1996. "Modeling Earnings Measurement Error: A Multiple Imputation Approach," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 705-717, November.
    7. Stacey Chen, 2001. "Is Investing in College Education Risky?," Discussion Papers 01-09, University at Albany, SUNY, Department of Economics.
    8. Ghanem, Dalia, 2017. "Testing identifying assumptions in nonseparable panel data models," Journal of Econometrics, Elsevier, vol. 197(2), pages 202-217.
    9. Ashenfelter, Orley & Harmon, Colm & Oosterbeek, Hessel, 1999. "A review of estimates of the schooling/earnings relationship, with tests for publication bias," Labour Economics, Elsevier, vol. 6(4), pages 453-470, November.
    10. Falco, Paolo & Haywood, Luke, 2016. "Entrepreneurship versus joblessness: Explaining the rise in self-employment," Journal of Development Economics, Elsevier, vol. 118(C), pages 245-265.
    11. Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August.

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