The Limits of Mathematics and NP Estimation in ... - Chichilnisky

Returns to Education and ExperienceWithin the EU: An Instrumental Variable Approach for Panel Data 89the fixed effect estimator. A second Hausman test contrasting the Hausman-Taylor againstthe fixed effects model (column H2), is useful in order to test the strict exogeneity of theregressors used as instruments in the Hausman-Taylor estimation. Once this secondHausman test has identified which regressors are strictly exogenous, they are then used asinstruments in the Hausman-Taylor estimation.Comparing the coefficients of Table 3 with those from the GLS estimation (not shown, butavailable from the authors upon request), we can note that the Hausman-Taylor estimationprovides coefficients of education and experience that, in general, are consistently muchhigher. This is in accordance with the typical finding reported in the literature when usinginstrumental variables of upward bias in IV-type, compared to OLS-type estimations.Regarding the returns to education, wages increase with educational attainment, withreturns higher among wage earners in Germany and Italy and quite similar in the UK, andthe coefficients for the self-employed with secondary education level in Germany and theUK are non-significant. The percentage changes across educational categories, computed asthe difference in the percentage change in wage for group i relative to the group i-1, e βi - e βi-1 ,where β i is the coefficient for the dummy variable for group I, show that returns increase aswe move up the qualification ladder, especially from secondary to higher education, whichsupports a convex configuration of earnings on the returns to education, thus confirming theimportance of the sheepskin effect. Both results, higher returns to education for paidworkers, and increasing non-linearities in the relationship between wages and educationalattainment, indicate some degree of a sorting or signalling role played by education.CountryGermanyItalyUnitedKingdomLabourstatusSelfemployedWageearnersSelfemployedWageearnersSelfemployedWageearnersExp. Exp. 2 /1000.053**(3.72)0.065**(22.24)0.037**(6.30)0.047**(27.52)0.053**(5.16)0.063**(27.27)-0.068**(-2.83)-0.084**(-22.21)-0.053**(-4.66)-0.089**(-23.60)-0.055**(-3.41)-0.106**(-27.28)Second.education0.654(0.89)0.848**(8.83)0.339**(2.78)0.551**(15.09)0.629(0.74)0.524**(3.41)Highereducation1.243*(2.45)1.291**(17.31)0.631**(6.35)0.847**(19.07)0.714**(3.54)0.706**(15.14)H1234.96(0.0000)1117.89(0.0000)138.47(0.0000)2103.26(0.0000)275.90(0.0000)2064.11(0.0000)H28.44(0.9986)10.51(0.9921)34.66(0.0946)49.63(0.0752)5.92(0.9999)4.58(1.0000)Table 3 Estimated Coefficients of Mincerian Earnings Function by Hausman-Taylor. Notes:t-ratios between parentheses (p-values in H1 and H2). Both panels are unbalanced, since theemployment status may vary across individuals over time. Controls used. Gender: 1 formale and 0 for female. Marital status: married, single, divorced, widow or separated.Training: if the worker has realized some course of occupational training. Eight dummiesthat indicate occupation. A dummy indicating whether the individual works in the privateor the public sector. Dummies that indicate seniority: less than two years, between 2 and 10years, and more than 10 years. Dummies that indicate the year. * Significant at the 5% level.** Significant at the 1% level. H1 tests the random effects estimator against the fixed effects.H2 tests the Hausman-Taylor estimator against the fixed effects.