Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192549 
Year of Publication: 
2008
Series/Report no.: 
Discussion Papers No. 567
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
In this paper we develop likelihood based methods for statistical inference in a joint system of equations for the choice of length of schooling and earnings. The model for schooling choice is assumed to be an ordered probit model, whereas the earnings equation contains variables that are flexible transformations of schooling and experience, with corresponding coefficients that are allowed to be heterogeneous across individuals. Under the assumption that the distribution of the random terms of the model can be expressed as a particular finite mixture of multinormal distributions, we show that the joint probability distribution for schooling and earnings can be expressed on closed form. In an application of our method on Norwegian data, we find that the mixed Gaussian model offers a substantial improvement in fit to the (heavy-tailed) empirical distribution of log-earnings compared to a multinormal benchmark model.
Subjects: 
Schooling choice
earnings equation
normal mixtures
treatment effects
self-selection
random coefficients
full information maximum likelihood
JEL: 
C31
I20
J30
Document Type: 
Working Paper

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