Wage dynamics and unobserved heterogeneity
Subtitle: time preference or learning ability?
By: by Lalith Munasinghe, Nachum Sicherman
Contributors: Sicherman, Nachum
Series: Discussion paper -- no. 1436; Discussion paper (Forschungsinstitut zur Zukunft der Arbeit : Online) -- no. 1436
Publisher: IZA
Published: 2004
Place of publication: Bonn, Germany
Language: eng
Format: [electronic resource] :
Subjects: Wages; Econometric models; Effect of education on
Description: "A large fraction of the variation in wage levels and wage growth rates among individuals remains unexplained. Economists argue that "unobserved" heterogeneity is among the more likely reasons for this unexplained variation in wages. The source of individual heterogeneity is typically attributed to data limitations and the unobservability of certain productivity related factors. In this paper we present a theory of career choice and derive a discriminating test between two inherently unobservable sources of heterogeneity -- learning ability and workers' inter-temporal preferences (discounting) -- both of which can clearly account for the variation in wage levels and wage growth rates. We apply this test to the large observed differences in wages and wage growth rates between smokers and non-smokers. The empirical evidence suggests that smoking is a proxy for individual discount rates"--Forschungsinstitut zur Zukunft der Arbeit web site.
Notes: Title from PDF file as viewed on 4/12/2005.

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