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Testing the Specification of the Mincer Wage Equation

  • Christian Belzil


    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

Using panel data taken from the NLSY, I perform the joint estimation of i) a reduced-form dynamic model of the transition from one grade level to the next with observed and unobserved heterogeneity, and ii) a flexible version of the celebrated Mincerian wage equation with skill heterogeneity, non linearity in schooling, non-separability between the effects of schooling and experience and heteroskedasticity (after conditionning on unobserved skills). The model rejects all symplifying assumptions common in the empirical literature. In particular, the log wage regression is highly convex, even after conditionning on unobserved and observed skills. Skill heterogeneity is also found to be over-estimated when non-linearity is ignored. After conditioning on skill heterogeneity, schooling has a positive effect on wage growth.

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Paper provided by HAL in its series Post-Print with number halshs-00142542.

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Date of creation: May 2006
Date of revision:
Publication status: Published in Working paper du GATE 2006-08. 2006
Handle: RePEc:hal:journl:halshs-00142542
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  1. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, 05.
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  3. Robert M. Sauer, 2004. "Educational Financing and Lifetime Earnings," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1189-1216, October.
  4. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
  5. Belzil, Christian & Hansen, Jorgen, 2007. "A structural analysis of the correlated random coefficient wage regression model," Journal of Econometrics, Elsevier, vol. 140(2), pages 827-848, October.
  6. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
  7. Thierry Magnac & David Thesmar, 2002. "Identifying Dynamic Discrete Decision Processes," Econometrica, Econometric Society, vol. 70(2), pages 801-816, March.
  8. Costas Meghir & Mårten Palme, 2001. "The effect of a social experiment in education," IFS Working Papers W01/11, Institute for Fiscal Studies.
  9. Carneiro, Pedro & Hansen, Karsten & Heckman, James, 2003. "Estimating distributions of treatment effects with an application to the returns to schooling and measurement of the effects of uncertainty on college choice," Working Paper Series 2003:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  10. Amanda Gosling & Stephen Machin & Costas Meghir, 1994. "The changing distribution of male wages in the UK," IFS Working Papers W94/13, Institute for Fiscal Studies.
  11. James Heckman & Edward Vytlacil, 1998. "Instrumental Variables Methods for the Correlated Random Coefficient Model: Estimating the Average Rate of Return to Schooling When the Return is Correlated with Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 33(4), pages 974-987.
  12. Christian Belzil, 2006. "The Return to Schooling in Structural Dynamic Models: A Survey," Post-Print halshs-00142538, HAL.
  13. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  14. Christian Belzil, 2003. "Structural Estimates of the Intergenerational Education Correlation," Post-Print hal-00541883, HAL.
  15. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  16. Christian Belzil, 2002. "Unobserved Ability and the Return to schooling++," Post-Print hal-00541872, HAL.
  17. Wooldridge, Jeffrey M., 1997. "On two stage least squares estimation of the average treatment effect in a random coefficient model," Economics Letters, Elsevier, vol. 56(2), pages 129-133, October.
  18. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
  19. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-75, September.
  20. Belzil, Christian & Hansen, Jörgen, 2003. "Structural Estimates of the Intergenerational Education Correlation," IZA Discussion Papers 973, Institute for the Study of Labor (IZA).
  21. Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, vol. 156(1), pages 3-20, May.
  22. Christian Belzil & Jörgen Hansen, 2002. "Unobserved Ability and the Return to Schooling," CIRANO Working Papers 2002s-19, CIRANO.
  23. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2005. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," IZA Discussion Papers 1700, Institute for the Study of Labor (IZA).
  24. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
  25. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
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  29. Fortin, N.M. & Lemieux, T., 1996. "Rank Regressions, Wage Distributions and the Gender Gap," Cahiers de recherche 9607, Universite de Montreal, Departement de sciences economiques.
  30. repec:oup:restud:v:68:y:2001:i:3:p:665-91 is not listed on IDEAS
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