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Testing the Specification of the Mincer Wage Equation

  • Belzil, Christian

    ()

    (Ecole Polytechnique, Paris)

I perform the joint estimation of a reduced-form dynamic model of the transition from one grade level to the next, and a Mincer wage equation, using panel data taken from the NLSY. A very high degree of flexibility is achieved by approximating the distributions of idiosyncractic grade transition shocks and wage shocks with high dimensional normal mixtures. 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, I also find evidence of non-separability between the effect of schooling and experience (schooling has a positive effect on wage growth). Finally, the variance of the idiosyncratic wage shock is reduced by obtaining higher education.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2650.

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Length: 37 pages
Date of creation: Mar 2007
Date of revision:
Publication status: published in: Annales d'Economie et de Statistique, 2008, 92/92, 427 - 451
Handle: RePEc:iza:izadps:dp2650
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