Empirical Economics

, Volume 37, Issue 2, pp 271–286

Self-selection bias in estimated wage premiums for earnings risk

Open Access
Original Paper

DOI: 10.1007/s00181-008-0231-0

Cite this article as:
Jacobs, B., Hartog, J. & Vijverberg, W. Empir Econ (2009) 37: 271. doi:10.1007/s00181-008-0231-0

Abstract

This note develops a simple occupational choice model to examine three types of selection biases that may occur in empirically estimating the premium for uncertain wages. Individuals may select themselves into risky (wage-uncertain) jobs because they have (1) lower risk aversion, or (2) lower income risks, or (3) higher individual ability. We show that (1) gives no bias, (2) biases the OLS estimate of the risk-premium in a wage regression upward, and (3) yields a bias that analytically may be positive or negative, but empirically is more likely to be negative if our occupational choice model is correct.

Keywords

Wages Earnings risk Selectivity bias 

JEL Classification

J31 C24 
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Copyright information

© The Author(s) 2008

Authors and Affiliations

  1. 1.Erasmus Universiteit RotterdamRotterdamThe Netherlands
  2. 2.Department of EconomicsUniversiteit van AmsterdamAmsterdamThe Netherlands
  3. 3.University of Texas at DallasDallasUSA

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