Wage Dynamics and Unobserved Heterogeneity: Time Preference of Learning Ability?

35 Pages Posted: 3 Feb 2005 Last revised: 24 Aug 2010

See all articles by Lalith Munasinghe

Lalith Munasinghe

Barnard College, Columbia University

Nachum Sicherman

Columbia University; IZA Institute of Labor Economics

Date Written: January 2005

Abstract

A large portion of the variation in wages and wage growth rates among individuals is due to "unobserved" heterogeneity, and the source of individual heterogeneity is typically attributed to data limitations and/or the unobservability of certain productivity related factors. In this paper we develop a test that discriminates between two inherently unobservable sources of heterogeneity (both of which can clearly account for the variation in wages and wage growth rates): learning ability and workers' inter-temporal preferences (discounting). We apply this test to the large observed differences in wages and wage growth rates between smokers and non-smokers. The evidence supports the discounting hypothesis.

Suggested Citation

Munasinghe, Lalith and Sicherman, Nachum, Wage Dynamics and Unobserved Heterogeneity: Time Preference of Learning Ability? (January 2005). NBER Working Paper No. w11031. Available at SSRN: https://ssrn.com/abstract=645273

Lalith Munasinghe

Barnard College, Columbia University ( email )

3009 Broadway
New York, NY 10027
United States
212-854-5652 (Phone)

Nachum Sicherman (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4464 (Phone)
212-316-9355 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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