Testing the Specification of the Mincer Wage Equation

Christian Belzil

No 2650, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: returns to schooling; random coefficient models; heterogeneity; Mincer regressions; returns to experience (search for similar items in EconPapers)
JEL-codes: J2 J3 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007-03
New Economics Papers: this item is included in nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Annales d'Economie et de Statistique, 2008, 92/92, 427 - 451

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Related works:
Journal Article: Testing the Specification of the Mincer Wage Equation (2008)
Working Paper: Testing the Specification of the Mincer Wage Equation (2006)
Working Paper: Testing the Specification of the Mincer Wage Equation (2006)
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