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Title:Work experience as a source of specification error in earnings models: implications for gender wage decompositions PDF Logo
Authors:Regan, Tracy L.
Oaxaca, Ronald L.
Issue Date:2006
Series/Report no.:IZA Discussion Papers 1920
Abstract:We address the bias from using potential vs. actual experience in earnings models. Statistical tests reject the classical errors-in-variable framework. The nature of the measurement error is best viewed as a model misspecification problem. We correct for this by modeling actual experience as a stochastic regressor and predicting experience using the NLSY79 and the PSID. Predicted experience measures are applied to the IPUMS. Our results suggest that potential experience biases the effects of schooling and the rates of return to labor market experience. Using such a measure in earnings models underestimates the explained portion of the male-female wage gap.
Subjects:experience
specification error
decomposition
gender
JEL:C81
J24
J31
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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