Panel Estimates of Male-Female Earnings Functions

This paper applies single and simultaneous equation fixed-effects (FE) and random-effects (RE) panel data estimation techniques to obtain male and female earnings function parameters. Using the Panel Study of Income Dynamics (PSID), the paper finds that earnings appreciation with experience and depreciation with labor market intermittency are comparable for men and women. Further, skill atrophy rates increase not decrease once one controls for heterogeneity and endogeneity. Finally the unexplained male-female wage differential declines from 40 percent to 20 percent when one adjusts for heterogeneity. Adjusting for endogeneity depends very much on the choice of instruments. However, when adjusting for endogeneity the gender earnings gap falls and approaches zero percent. These results hold for two separate subsamples so that the estimates appear robust independent of sample selectivity.

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