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On the Specification of Mincerian Wage Regressions with Heterogeneity, Non-Linearity, Non-Separability, and Heteroskedasticity


  • Belzil, Christian

    () (Ecole Polytechnique, Paris)


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 regression with skill heterogeneity, non-linearity in schooling, non-separability between the effects of schooling and experience and heteroskedasticity (after conditioning on unobserved skills). The model rejects all simplifying assumptions common in the empirical literature. In particular, the log wage regression is highly convex, even after conditioning 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 causal effect on wage growth. I find that estimates obtained in a standard framework (assuming separability) may underestimate the returns to schooling upon labor market entrance by as much as 15%. Finally, I find that the variance of the stochastic wage shock decreases with accumulated experience but is more or less independent of schooling.

Suggested Citation

  • Belzil, Christian, 2004. "On the Specification of Mincerian Wage Regressions with Heterogeneity, Non-Linearity, Non-Separability, and Heteroskedasticity," IZA Discussion Papers 1083, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1083

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    References listed on IDEAS

    1. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    2. Orley C. Ashenfelter & Kevin F. Hallock (ed.), 1995. "Labor Economics," Books, Edward Elgar Publishing, volume 0, number 526.
    3. Nicole M. Fortin & Thomas Lemieux, 1998. "Rank Regressions, Wage Distributions, and the Gender Gap," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 610-643.
    4. 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.
    5. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
    6. 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.
    7. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1993. "Hierarchies and compensation: A case study," European Economic Review, Elsevier, vol. 37(2-3), pages 366-378, April.
    8. Costas Meghir & Mårten Palme, 2001. "The effect of a social experiment in education," IFS Working Papers W01/11, Institute for Fiscal Studies.
    9. Robert M. Sauer, 2004. "Educational Financing and Lifetime Earnings," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1189-1216.
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    Cited by:

    1. Zamarro, Gema, 2010. "Accounting for heterogeneous returns in sequential schooling decisions," Journal of Econometrics, Elsevier, vol. 156(2), pages 260-276, June.
    2. Måns Söderbom & Francis Teal & Anthony Wambugu & Godius Kahyarara, 2006. "The Dynamics of Returns to Education in Kenyan and Tanzanian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(3), pages 261-288, June.

    More about this item


    Mincer regressions; heterogeneity; random coefficient models; returns to schooling; returns to experience;

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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