Changes across Cohorts in Wage Returns to Schooling and Early Work Experiences
This paper investigates the wage returns to schooling and actual early work experiences, and how these returns have changed over the past twenty years. Using the NLSY surveys, we develop and estimate a dynamic model of the joint schooling and work decisions that young men make in early adulthood, and quantify how they affect wages using a generalized Mincerian specification. Our results highlight the need to account for dynamic selection and changes in composition when analyzing changes in wage returns. In particular, we find that ignoring the selectivity of accumulated work experiences results in overstatement of the returns to education.
We thank Christian Belzil, Michael Boehm, Flavio Cunha, Lance Lochner, Matt Masten and participants at various seminars and conferences for useful comments and discussions at various stages of this research. We especially wish to thank Vladislav Slanchev for providing us with a version of his statistical software for estimating dynamic discrete choice models with a latent factor error structure that we used in our structural analysis and for his generous assistance in adapting it to our context. Any remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.