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Media type:
E-Article
Title:
Estimating the Variance of Wages in the Presence of Selection and Unobserved Heterogeneity
Contributor:
Chen, Stacey H.
imprint:
MIT Press, 2008
Published in:The Review of Economics and Statistics
Language:
English
ISSN:
0034-6535;
1530-9142
Origination:
Footnote:
Description:
<p>Identification of potential wage distributions by education is important to the study of the causal links between education, inequality, and uncertainty. Potential wage inequality within an educational group (that is, the variance in wages if all workers had the same education) exceeds the observed statistics because self-selected education truncates wage distributions. Decomposing potential wage inequality into heterogeneity (known to the agent making the educational choice) and uncertainty (unknown to the agent) suggests that wage uncertainty does not necessarily rise with education. It is unobserved heterogeneity, not uncertainty, that explains the observed relationship between college graduation and higher wage inequality.</p>