Pischke, Jörn-Steffen and Schwandt, Hannes (2012) A cautionary note on using industry affiliation to predict income. CEP Discussion Papers, CEPDP1163. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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Abstract
Many literatures investigate the causal impact of income on economic outcomes, for example in the context of intergenerational transmission or well-being and health. Some studies have proposed to use employer wage differentials and in particular industry affiliation as an instrument for income. We demonstrate that industry affiliation is correlated with fixed individual characteristics, specifically parents’ education and own height, conditional on the covariates typically controlled for in these studies. These results suggest that there is selection into industries based on unobservables. As a result the exclusion restriction in many IV studies of this type is likely violated.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://cep.lse.ac.uk/_new/publications/series.asp?... |
| Additional Information: | © 2012 The Authors |
| Subjects: | H Social Sciences > HF Commerce |
| JEL classification: | D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions I - Health, Education, and Welfare > I3 - Welfare and Poverty J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. |
| Sets: | Departments > Economics Collections > Economists Online Research centres and groups > Centre for Economic Performance (CEP) |
| Series: | Working Papers > CEP Discussion Papers |
| Date Deposited: | 07 Aug 2013 13:55 |
| Last Modified: | 07 Aug 2013 14:07 |
| URI: | http://eprints.lse.ac.uk/id/eprint/51508 |
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