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Work experience as a source of specification errorin earnings models: implications for genderwage decompositions

Author

Listed:
  • Tracy L. Regan

    (Department of Economics, University of Miami)

  • Ronald L. Oaxaca

    (Department of Economics, University of Arizona, McCelland Hall #401)

Abstract

This paper models the bias from using potential vs actual experience in log wage models. The nature of the problem is best viewed as specification error as opposed to classical errors-in-variables.We correct for the discrepancy between potential and actual work experience and create a predicted measure of work experience. We use the 1979 National Longitudinal Survey of Youth and the Panel Study of Income Dynamics and extend our findings to the Integrated Public Use Microdata Sample. 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.We are able to separately identify the decomposition biases associated with incorrect experience measures and biased parameter estimates.

Suggested Citation

  • Tracy L. Regan & Ronald L. Oaxaca, 2007. "Work experience as a source of specification errorin earnings models: implications for genderwage decompositions," Working Papers 2010-6, University of Miami, Department of Economics.
    • Handle: RePEc:mia:wpaper:2010-6
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    References listed on IDEAS

    as
    1. Heather Antecol & Kelly Bedard, 2002. "The Relative Earnings of Young Mexican, Black, and White Women," ILR Review, Cornell University, ILR School, vol. 56(1), pages 122-135, October.
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    5. Heather Antecol & Kelly Bedard, 2004. "The Racial Wage Gap: The Importance of Labor Force Attachment Differences across Black, Mexican, and White Men," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
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    9. Tracy L. Regan & Ronald L. Oaxaca & Galen Burghardt, 2007. "A Human Capital Model Of The Effects Of Ability And Family Background On Optimal Schooling Levels," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 721-738, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Experience; Decomposition; Specification error;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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