Work Experience as a Source of Specification Error in Earnings Models: Implications for Gender Wage Decompositions

43 Pages Posted: 26 Jan 2006

See all articles by Tracy Regan

Tracy Regan

University of Miami - School of Business Administration - Department of Economics

Ronald L. Oaxaca

University of Arizona - Department of Economics; IZA Institute of Labor Economics

Date Written: January 2006

Abstract

We address the bias from using potential vs. actual experience in earnings models. Statistical tests reject the classical errors-in-variable framework. The nature of the measurement error is best viewed as a model misspecification problem. We correct for this by modeling actual experience as a stochastic regressor and predicting experience using the NLSY79 and the PSID. Predicted experience measures are applied to the IPUMS. 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.

Keywords: experience, specification error, decomposition, gender

JEL Classification: C81, J24, J31

Suggested Citation

Regan, Tracy and Oaxaca, Ronald L., Work Experience as a Source of Specification Error in Earnings Models: Implications for Gender Wage Decompositions (January 2006). IZA Discussion Paper No. 1920. Available at SSRN: https://ssrn.com/abstract=878306

Tracy Regan

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

Ronald L. Oaxaca (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4135 (Phone)
520-621-8450 (Fax)

IZA Institute of Labor Economics

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

Register to save articles to
your library

Register

Paper statistics

Downloads
74
Abstract Views
732
rank
317,469
PlumX Metrics