Testing the Specification of the Mincer Wage Equation

Using panel data taken from the NLSY, I perform the joint estimation of i) a reduced-form dynamic model of the transition from one grade level to the next with observed and unobserved heterogeneity, and ii) a flexible version of the celebrated Mincerian wage equation with skill heterogeneity, non linearity in schooling, non-separability between the effects of schooling and experience and heteroskedasticity (after conditionning on unobserved skills). The model rejects all symplifying assumptions common in the empirical literature. In particular, the log wage regression is highly convex, even after conditionning on unobserved and observed skills. Skill heterogeneity is also found to be over-estimated when non-linearity is ignored. After conditioning on skill heterogeneity, schooling has a positive effect on wage growth.