The Strength of Occupation Indicators as a Proxy for Skill
Labor economists have long used occupation indicators as a proxy for unobserved skills that a worker possesses. In this paper, we consider whether inter-occupational wage differentials that are unexplained by measured human capital are indeed due to differences in often-unmeasured skill. Using the National Compensation Survey, a large, nationally- representative dataset on jobs and ten different components of requisite skill, we compare the effects on residual wage variation of including occupation indicators and including additional skills measures. We find that although skills do vary across 3-digit occupations, occupation indicators decrease wage residuals by far more than can be explained by skill differentials. This indicates that “controlling for occupation” does not equate to controlling for skill alone, but also for some other factors to a great extent. Additionally, we find that there is considerable within occupation variation in skills, and that the amount of variation is not constant across skill levels. As a result, including occupation indicators in a wage model introduces heteroskedasticity that must be accounted for. We suggest that greater caution be applied when using and interpreting occupation indicators as controls in wage regressions.
|Date of creation:||Mar 2007|
|Contact details of provider:|| Postal: 2 Massachusetts Avenue, N.E. Room 2860, Washington, D. C. 20212|
Phone: (202) 606-5900
Fax: (202) 606-7890
Web page: http://www.bls.gov
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francine D. Blau & Lawrence M. Kahn, 2000.
"Gender Differences in Pay,"
NBER Working Papers
7732, National Bureau of Economic Research, Inc.
- David H. Autor & Frank Levy & Richard Murnane, 2000. "Upstairs, Downstairs: Computer-Skill Complementarity and Computer-Labor Substitution on Two Floors of a Large Bank," NBER Working Papers 7890, National Bureau of Economic Research, Inc.
- Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
When requesting a correction, please mention this item's handle: RePEc:bls:wpaper:ec070030. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gregory Kurtzon)
If references are entirely missing, you can add them using this form.