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Earnings returns to education, experience and health: Evidence from EU-SILC

Listed author(s):
  • Yolanda Pena-Boquete

    ()

  • Manuel Flores

Using individual-level panel data from European Union Statistics on Income and Living Conditions (2007-2010) we explore to what extend wage differentials across European countries are explained by differences in education, actual experience and health. The human capital literature suggests an important role for these variables in explaining wage patterns. However, while there is a wide support in the empirical literature of the positive impacts of education and experience on wages, the relationship between wages and health is less clear-cut. What makes it most difficult to disentangle these effects is that education, experience, health and wages are interrelated. To deal with these issues, we implement an Efficient Generalized Instrumental Variable estimator. This procedure allows simultaneous control for the correlation between regressors and unobserved individual effects (as fixed effects) and to identify the estimates for the time-invariant covariates, such as education, as a random effects estimator. Furthermore, it eliminates the uncertainty associated with the choice of instruments, since exogenous included variables, and their means over time, are used as efficient instruments. Our preliminary results suggest that taking this possible unobserved heterogeneity in education and experience into account does not significantly affect the estimation results. Instead, correcting for possible unobserved heterogeneity and/or measurement error in SRH status changes the estimation results dramatically. Still, we find that for both men and women in Europe education, actual experience and health have positive impacts on wages.

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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_01169.pdf
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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa13p1169.

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Date of creation: Nov 2013
Handle: RePEc:wiw:wiwrsa:ersa13p1169
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  1. Sarah Brown & Jenny Roberts & Karl Taylor, 2008. "Reservation Wages, Labour Market Participation And Health," Working Papers 2008002, The University of Sheffield, Department of Economics, revised Feb 2008.
  2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, Enero.
  3. Douglas Almond & Janet Currie, 2010. "Human Capital Development Before Age Five," NBER Working Papers 15827, National Bureau of Economic Research, Inc.
  4. Arie Kapteyn & James P. Smith & Arthur van Soest, 2007. "Vignettes and Self-Reports of Work Disability in the United States and the Netherlands," American Economic Review, American Economic Association, vol. 97(1), pages 461-473, March.
  5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-161, January.
  6. Robert Haveman & Mark Stone & Barbara Wolfe, 1989. "Market Work, Wages, and Men's Health," NBER Working Papers 3020, National Bureau of Economic Research, Inc.
  7. Crossley, Thomas F. & Kennedy, Steven, 2002. "The reliability of self-assessed health status," Journal of Health Economics, Elsevier, vol. 21(4), pages 643-658, July.
  8. Roger H. Gordon & Alan S. Blinder, 1980. "Market Wages, Reservation Wages, and Retirement Decisions," NBER Working Papers 0513, National Bureau of Economic Research, Inc.
  9. Jäckle, Robert & Himmler, Oliver, 2007. "Health and Wages - Panel data estimates considering selection and endogeneity," MPRA Paper 11578, University Library of Munich, Germany, revised Nov 2008.
  10. Lee, Lung-Fei, 1982. "Health and Wage: A Simultaneous Equation Model with Multiple Discrete Indicators," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 199-221, February.
  11. Erik Meijer & Arie Kapteyn & Tatiana Andreyeva, 2011. "Internationally comparable health indices," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 600-619, May.
  12. Lixin Cai, 2009. "Effects of Health on Wages of Australian Men," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 290-306, 09.
  13. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
  14. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  15. (*), Nigel Rice & Paul Contoyannis, 2001. "The impact of health on wages: Evidence from the British Household Panel Survey," Empirical Economics, Springer, vol. 26(4), pages 599-622.
  16. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
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