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Empirical Economics

, Volume 37, Issue 2, pp 271–286 | Cite as

Self-selection bias in estimated wage premiums for earnings risk

  • Bas Jacobs
  • Joop Hartog
  • Wim Vijverberg
Open Access
Original Paper

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 

Notes

Open Access

This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

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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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