Changes in the Return to Skills and the Variance of Unobserved Ability

Guido Matias Cortes and Manuel Hidalgo

No 15.15, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: Changes in within-group wage inequality are often interpreted as reflecting changes in returns to unobservable skills. This interpretation relies on the highly restrictive assumption that the variance of skills within groups remains constant over time. We propose and implement a new identification strategy which relaxes this assumption using longi- tudinal data. Results based on matched CPS data for 1982-2012 show strong evidence of increases in the dispersion of unobserved skills, par- ticularly among college graduates. Contrary to the conclusion drawn when constant within-group skill variance is assumed, our results sug- gest that the return to skills decreased during the 1980s and early 1990s.

Keywords: Return to skills; Within-group wage inequality (search for similar items in EconPapers)
JEL-codes: E24 J24 J31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-12
New Economics Papers: this item is included in nep-lma and nep-mac
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http://www.upo.es/serv/bib/wps/econ1515.pdf

Related works:
Working Paper: Changes in the Returns to Skill and the Variance of Unobserved Ability (2016)
Working Paper: Changes in the Return to Skills and the Variance of Unobserved Ability (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pab:wpaper:15.15

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