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Estimation of Earnings- and Schooling Choice Relations: A Likelihood Approach

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In this paper we develop a full information maximum likelihood method for the estimation of a joint model for the choice of length of schooling and the corresponding earnings equation. The model for schooling is assumed to be an ordered probit model, whereas the earnings equation is allowed to be very general with explanatory variables that are flexible transformations of schooling and experience. The coefficients associated with length of schooling and experience are allowed to be random and all the random terms of the model may be correlated. Under normality assumptions, we show that the joint probability distribution for schooling and earnings can be expressed on a closed form that is tractable for empirical analysis.

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  • John K. Dagsvik & Torbjørn Hægeland & Arvid Raknerud, 2006. "Estimation of Earnings- and Schooling Choice Relations: A Likelihood Approach," Discussion Papers 486, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:486
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    6. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "2001 Lawrence R. Klein Lecture Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 361-422, May.
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    Cited by:

    1. Cappelen, Ådne & Raknerud, Arvid & Rybalka, Marina, 2012. "The effects of R&D tax credits on patenting and innovations," Research Policy, Elsevier, vol. 41(2), pages 334-345.

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    More about this item

    Keywords

    Schooling choice; earnings equation; treatment effects; self-selection; ordered probit; random coefficients; full information maximum likelihood;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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