Discussion Papers no. 567

A likelihood approach based on normal mixtures

Estimating the returns to schooling

Publisert:

Åpne og les publikasjonen i PDF (47 sider)

In this paper we develop likelihood based methods for statistical inference in a joint system of
equations for the choice of length of schooling and earnings. The model for schooling choice is
assumed to be an ordered probit model, whereas the earnings equation contains variables that are
flexible transformations of schooling and experience, with corresponding coefficients that are allowed
to be heterogeneous across individuals. Under the assumption that the distribution of the random
terms of the model can be expressed as a particular finite mixture of multinormal distributions, we
show that the joint probability distribution for schooling and earnings can be expressed on closed
form. In an application of our method on Norwegian data, we find that the mixed Gaussian model
offers a substantial improvement in fit to the (heavy-tailed) empirical distribution of log-earnings
compared to a multinormal benchmark model.

Om publikasjonen

Tittel

Estimating the returns to schooling. A likelihood approach based on normal mixtures

Ansvarlige

John K. Dagsvik, Torbjørn Hægeland, Arvid Raknerud

Serie og -nummer

Discussion Papers no. 567

Utgiver

Statistics Norway

Emne

Discussion Papers

ISSN

1892-753X

Antall sider

47

Målform

Engelsk

Om Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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