Fifty Years of Mincer Earnings Regressions
TLDR
The authors examined the theoretical foundations of the Mincer model and examined the empirical support for it using data from Decennial Censuses and Current Population Surveys and found that the results from later decades are inconsistent with it.Abstract:
The Mincer earnings function is the cornerstone of a large literature in empirical economics. This paper discusses the theoretical foundations of the Mincer model and examines the empirical support for it using data from Decennial Censuses and Current Population Surveys. While data from 1940 and 1950 Censuses provide some support for Mincer's model, data from later decades are inconsistent with it. We examine the importance of relaxing functional form assumptions in estimating internal rates of return to schooling and of accounting for taxes, tuition, nonlinearity in schooling, and nonseparability between schooling and work experience. Inferences about trends in rates of return to high school and college obtained from our more general model differ substantially from inferences drawn from estimates based on a Mincer earnings regression. Important differences also arise between cohort-based and cross-sectional estimates of the rate of return to schooling. In the recent period of rapid technological progress, widely used cross-sectional applications of the Mincer model produce dramatically biased estimates of cohort returns to schooling. We also examine the implications of accounting for uncertainty and agent expectation formation. Even when the static framework of Mincer is maintained, accounting for uncertainty substantially affects the return estimates. Considering the sequential resolution of uncertainty over time in a dynamic setting gives rise to option values, which fundamentally changes the analysis of schooling decisions. In the presence of sequential resolution of uncertainty and option values, the internal rate of return - a cornerstone of classical human capital theory - is not a useful guide to policy analysis.read more
Citations
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References
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Book
Schooling, Experience, and Earnings
TL;DR: In this article, the authors analyzed the distribution of worker earnings across workers and over the working age as consequences of differential investments in human capital and developed the human capital earnings function, an econometric tool for assessing rates of return and other investment parameters.
Journal ArticleDOI
Problems with Instrumental Variables Estimation when the Correlation between the Instruments and the Endogenous Explanatory Variable is Weak
TL;DR: In this article, the use of instruments that explain little of the variation in the endogenous explanatory variables can lead to large inconsistencies in the IV estimates even if only a weak relationship exists between the instruments and the error in the structural equation.
Book
Local polynomial modelling and its applications
Jianqing Fan,Irène Gijbels +1 more
TL;DR: Applications of Local Polynomial Modeling in Nonlinear Time Series and Automatic Determination of Model Complexity and Framework for Local polynomial regression.
Journal ArticleDOI
Changes in Relative Wages, 1963–1987: Supply and Demand Factors
Lawrence F. Katz,Kevin M. Murphy +1 more
TL;DR: A simple supply and demand framework is used to analyze changes in the U.S. wage structure from 1963 to 1987 as discussed by the authors, showing that rapid secular growth in the demand for more-educated workers, "more-skilled" workers, and females appears to be the driving force behind observed changes in wage structure.