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Measurement Error in Human Capital and the Black-White Wage Gap

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  • Christopher R. Bollinger

    (University of Kentucky)

Abstract

Proxy variables are frequently used in economics to control for unavailable variables in a linear regression setting. For example, AFQT scores have been used to control for human capital accumulation in measuring black-white wage differentials. This practice may bias the coefficient estimates for the correctly measured variables as well. This paper models proxy variables as a measurement error process and derives bounds for the coefficients on the correctly measured variables under a variety of assumptions. The results show that the coefficient on race in a linear regression is an overstatement of the actual black-white wage gap. Sensitivity analysis suggests that if human capital could be correctly measured it would be unlikely that the coefficient on black would be negative. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Christopher R. Bollinger, 2003. "Measurement Error in Human Capital and the Black-White Wage Gap," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 578-585, August.
  • Handle: RePEc:tpr:restat:v:85:y:2003:i:3:p:578-585
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    Cited by:

    1. Eirini-Christina Saloniki & Amanda Gosling, 2012. "Point identification in the presence of measurement error in discrete variables: application - wages and disability," Studies in Economics 1214, School of Economics, University of Kent.
    2. repec:spr:soinre:v:134:y:2017:i:2:d:10.1007_s11205-016-1451-x is not listed on IDEAS
    3. Engzell, Per, 2017. "What Do Books in the Home Proxy For? A Cautionary Tale," Working Paper Series 1/2016, Stockholm University, Swedish Institute for Social Research.
    4. Nikolas Mittag, 2013. "A Method Of Correcting For Misreporting Applied To The Food Stamp Program," Working Papers 13-28, Center for Economic Studies, U.S. Census Bureau.
    5. Zhang, Fan & Polyakov, Maksym & Fogarty, James & Pannell, David, 2016. "The Capitalized Value of Rainwater Tanks in the Property Market of Perth, Australia," Working Papers 246968, University of Western Australia, School of Agricultural and Resource Economics.
    6. Schofield, Lynne Steuerle, 2014. "Measurement error in the AFQT in the NLSY79," Economics Letters, Elsevier, vol. 123(3), pages 262-265.
    7. Jonathan Fisher & Christina Houseworth, 2012. "The reverse wage gap among educated White and Black women," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 449-470, December.
    8. Kassenboehmer, Sonja C. & Schurer, Stefanie & Leung, Felix, 2015. "Testing the Validity of Item Non-Response as a Proxy for Cognitive and Non-Cognitive Skills," IZA Discussion Papers 8874, Institute for the Study of Labor (IZA).
    9. Dan A. Black & Jeffrey A. Smith, 2006. "Estimating the Returns to College Quality with Multiple Proxies for Quality," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 701-728, July.

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