DP16999 Lifecycle Wages and Human Capital Investments: Selection and Missing Data

Author(s): Laurent Gobillon, Thierry Magnac, Sébastien Roux
Publication Date: February 2022
Keyword(s): factor models, Human capital investment, Missing Data, Wage Inequalities
JEL(s): C38, D91, I24, J24, J31
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16999

We derive wage equations with individual specific coefficients from a structural model of human capital investments over the life-cycle. This model allows for interruptions in labor market participation, and addresses missing data and attrition issues. We further control for selection in a flexible way by using interactive effects. Estimation is based on long administrative panel data of male wages in the private sector in France. A structural function approach shows that interruptions negatively affect average wages. More surprisingly, they also negatively affect the inter-decile range of wages after twenty years, and this is due to interruptions being endogeneous. These results question the popular Missing At Random assumption that is made when assessing the building up of wage inequalities over the life cycle.