The Review of Economics and Statistics Vol. 85 No. 3 2003
Measurement Error in Human Capital and the Black-White Wage Gap
Abstract
Proxy variables are frequently used in economics to control for unavailable variables in a linear regression setting. For example, AFQT scores have been used to control for human capital accumulation in measuring black-white wage differentials. This practice may bias the coefficient estimates for the correctly measured variables as well. This paper models proxy variables as a measurement error process and derives bounds for the coefficients on the correctly measured variables under a variety of assumptions. The results show that the coefficient on race in a linear regression is an overstatement of the actual black-white wage gap. Sensitivity analysis suggests that if human capital could be correctly measured it would be unlikely that the coefficient on black would be negative.
- DOI
- 10.1162/003465303322369731
- Volume
- 85
- Issue
- 3
- Pages
- 578-585
- Language
- en
- Sources
- openalex crossref