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Title:A cautionary note on using industry affiliation to predict income PDF Logo
Authors:Pischke, Jörn-Steffen
Schwandt, Hannes
Issue Date:2012
Series/Report no.:Discussion Paper Series, Forschungsinstitut zur Zukunft der Arbeit 6840
Abstract:Many literatures investigate the causal impact of income on economic outcomes, for example in the context of intergenerational transmission or well-being and health. Some studies have proposed to use employer wage differentials and in particular industry affiliation as an instrument for income. We demonstrate that industry affiliation is correlated with fixed individual characteristics, specifically parents education and own height, conditional on the covariates typically controlled for in these studies. These results suggest that there is selection into industries based on unobservables. As a result the exclusion restriction in many IV studies of this type is likely violated.
Subjects:industry wage differentials
health
happiness
intergenerational mobility
JEL:D31
I14
I3
J31
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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