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"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.
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1
Wage dynamics and unobserved heterogeneity: time preference of learning ability?
2005, National Bureau of Economic Research
Electronic resource
in English
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Wage dynamics and unobserved heterogeneity: time preference or learning ability?
2004, IZA
electronic resource :
in English
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Book Details
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Title from PDF file as viewed on 4/12/2005.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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"A large portion of the variation in wages and wage growth rates among individuals is due to "unobserved" heterogeneity, and the source of individual heterogeneity is typically attributed to data limitations and/or the unobservability of certain productivity related factors. In this paper we develop a test that discriminates between two inherently unobservable sources of heterogeneity (both of which can clearly account for the variation in wages and wage growth rates): learning ability and workers' inter-temporal preferences (discounting). We apply this test to the large observed differences in wages and wage growth rates between smokers and non-smokers. The evidence supports the discounting hypothesis"--National Bureau of Economic Research web site.
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