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date: 19 February 2020

Abstract and Keywords

Chapter 19 surveys some of the key problems confronting empirical applications in labor economics and how panel data can be utilized to robustly estimate parameters of economic interest. Topics include whether and how to introduce heterogeneity in intercept and slope parameters; measurement errors in regressors; endogeneity bias and associated panel instrumental variables estimators; sample composition dynamics to control for selection on (un)observables; and model specification and selection issues such as a static or dynamic framework. The pedagogical framework for the discussion is the Mincer-type human-capital wage equation used in quantifying the value of statistical life (VSL) in labor market data. The application demonstrates that whether one controls for latent heterogeneity is more important than how, and conditional on latent heterogeneity, the range of VSL estimates is $6 million to $10 million with robust controls for measurement error, endogeneity, and dynamics.

Keywords: labor economics, panel data, econometrics, measurement errors, endogeneity bias, models, human capital wage, Mincer

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