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A cautionary note on using industry affiliation to predict income

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
Library of Congress subject classification: H Social Sciences > HF Commerce
Journal of Economic Literature Classification System: 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)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: CEPDP1163
Date Deposited: 07 Aug 2013 13:55
URL: http://eprints.lse.ac.uk/51508/

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