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Ability, sorting and wage inequality

Author

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  • Pedro Carneiro

    (Institute for Fiscal Studies and University College London)

  • Sokbae (Simon) Lee

    (Institute for Fiscal Studies and Columbia University)

Abstract

In this paper we examine the importance of heterogeneity and self-selection into schooling for the study of inequality. Changes in inequality over time are a combination of price changes, selection bias and composition effects. To distinguish them, we estimate a semiparametric selection model for a sample of white males surveyed (during the 1990s) by the National Longitudinal Survey of Youth, but our results are applicable to broader analyses of inequality. In our data, as college enrollment increases in the economy, average college wages decrease and average high school wages increase, and therefore inequality between college and high school groups decreases. Moreover, selection bias causes us to understate the growth of different measures of the average return to schooling in our sample. It also leads us to understate the increase in wage dispersion at the top of the college wage distribution, and to overstate it at the bottom of the college wage distribution.

Suggested Citation

  • Pedro Carneiro & Sokbae (Simon) Lee, 2005. "Ability, sorting and wage inequality," CeMMAP working papers CWP16/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:16/05
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    File URL: http://cemmap.ifs.org.uk/wps/cwp1605.pdf
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    3. Paul Bingley & Kaare Christensen & Ian Walker, 2007. "The Returns to Observable and Unobservable Skills over time: Evidence from a Panel of the Population of Danish Twins," Working Papers 200723, Geary Institute, University College Dublin.

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    Keywords

    Comparative advantage; composition effects; local instrumental variables; selection bias; semiparametric estimation; wage distribution.;
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