A Structural Analysis of the Correlated Random Coefficient Wage Regression Model

Christian Belzil and Jorgen Hansen

No 405, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We estimate a finite mixture dynamic programming model of schooling decisions in which the log wage regression function is set in a random coefficient framework. We also analyze the determinants of 3 counterfactual experiments (a college attendance subsidy, a high school graduation subsidy and an overall decrease in the rate of time preference) and examine a proposition often claimed in the “Average Treatment Effects” literature; that the discrepancy between OLS and IV estimates of the returns to schooling may be explained by the relatively higher returns experienced by those affected by exogenous policy changes. We find that the average return to experience upon entering the labor market (0.0863) exceeds the average return to schooling (0.0576) and we find more cross-sectional variability in the returns to experience than in the returns to schooling. Labor market skills (as opposed to taste for schooling) appear to be the prime factor explaining schooling attainments. We find little evidence in favor of a positive correlation between reactions induced by an exogenous experiment and the individual specific returns to schooling.

Keywords: Random Coefficient; Returns to Schooling; Comparative Advantages; Dynamic Programming; Dynamic Self-Selection (search for similar items in EconPapers)
JEL-codes: J2 J3 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: A structural analysis of the correlated random coefficient wage regression model (2007)
Working Paper: A Structural Analysis of the Correlated Random Coefficient Wage Regression Model (2007)
Working Paper: Structural analysis of the correlated radom coefficient wage regression model (2006)
Working Paper: A Structural Analysis of the Correlated Random Coefficient Wage Regression Model (2002)
Working Paper: A Structure Analysis of the Correlated Random Coefficient Wage Regression Model (2002)
Working Paper: A Structural Analysis of the Correlated Random Coefficient Wage Regression Model (2002)
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