A Dynamic Analysis of Educational Attainment, Occupational Choices, and Job Search

Sullivan, Paul (2007): A Dynamic Analysis of Educational Attainment, Occupational Choices, and Job Search.

Abstract

This paper examines career choices using a dynamic structural model that nests a job search model within a human capital model of occupational and educational choices. Individuals in the model decide when to attend school and when to move between firms and occupations over the course of their career. Workers search for suitable wage and non-pecuniary match values at firms across occupations given their heterogeneous skill endowments and preferences for employment in each occupation. Over the course of their careers workers endogenously accumulate firm and occupation specific human capital that affects wages differently across occupations. The parameters of the model are estimated with simulated maximum likelihood using data from the 1979 cohort of the National Longitudinal Survey of Youth. The structural parameter estimates reveal that both self-selection in occupational choices and mobility between firms account for a much larger share of total earnings and utility than the combined effects of firm and occupation specific human capital. Eliminating the gains from matching between workers and occupations would reduce total wages by 31%, eliminating the gains from job search would reduce wages by 19%, and eliminating the effects of firm and occupation specific human capital on wages would reduce wages by only 2.8%.

• Item Type: MPRA Paper
• Institution: Bureau of Labor Statistics
• Language: English
• Keywords: occupational choice; job search; human capital; dynamic programming models
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J62 - Job, Occupational, and Intergenerational Mobility; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I21 - Analysis of Education; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity

References

Altonji, Joseph and Robert Shakotko (1987). "Do Wages Rise with Job Seniority?" The Review of Economic Studies, v. 54, no. 3.

Bartel, Ann (1982). "Wages, Nonwage Job Characteristics and Labor Mobility." Industrial and Labor Relations Review, v. 35: 578-589.

Belzil, Christian and Jorgen Hansen (2002). "Unobserved Ability and the Return to Schooling." Econometrica, v. 70, no. 5.

berkstern : Berkovec, James, and Steven Stern (1991). "Job Exit Behavior of Older Men." Econometrica, v. 59, no. 1: 189-210.

BHHH : Berndt, Earnst, Bronwyn Hall, Robert Hall and Jerry Hausman (1974). "Estimation and Inference in Nonlinear Structural Models." Annals of Economic and Social Measurement, v. 3: 653-665.

blau : Blau, David (1991). "Search for Nonwage Job Characteristics: A Test of the Reservation Wage Hypothesis." Journal of Labor Economics, v. 9, no. 2: 186-205.

bls : Brien, Michael, Lee Lillard, and Steven Stern (2006). "Cohabitation, Marriage and Divorce in a Model of Match Quality." International Economic Review, v. 47, no. 2.

brown+flinn : Brown, Meta and Christopher Flinn (2004) "Investment in Child Quality Over Marital States." Working Paper.

cam+heck : Cameron, Stephen, and James Heckman (1993). "The Nonequivalence of High School Equivalents." Journal of Labor Economics, v. 11, Issue 1, Part 1: 1-47. Cameron, Stephen, and Christopher Taber (2003). "Estimation of Educational Borrowing Constraints using Returns to Schooling." Working Paper.

c+s : Canals-Cerda, Jose, and Steven Stern (2002). "Empirical Search Models." in Search Theory and Unemployment, eds. Steven Woodbury and Carl Davidson, Kluwer Academic Publications.

Card, David. (1999) "The Causal Effect of Education on Earnings." In Handbook of Labor Economics, v. 3, eds. Orley Ashenfelter and David Card. Elsevier, Amsterdam.

Dey, Matthew and Christopher Flinn (2005). "An Equilibrium Model of Health Insurance Provision and Wage Determination." Econometrica, v. 73, no. 2.

Dustmann, Christian and Costas Meghir (2005). "Wages, Experience and Seniority." Review of Economic Studies, v. 72, no. 1.

Eckstein, Zvi and Gerard van den Berg (2006). "Empirical Labor Search: A Survey." Journal of Econometrics, forthcoming.

ecksteinwolpin : Eckstein, Zvi, and Kenneth Wolpin (1999). "Why Youths Drop Out of High School: The Impact of Preferences, Opportunities, and Abilities." Econometrica, v. 67, No. 6.

geweke : Geweke, John (1988). "Antithetic Acceleration of Monte Carlo Integration in Bayesian Inference." Journal of Econometrics, v. 38: 73-89.

hall : Hall, Robert (1982). "The Importance of Lifetime Jobs in the U.S Economy." American Economic Review, v. 72: 716-724.

H+ : Heckman, James, and Burton Singer (1984). "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data." Econometrica, v. 52: 271-320.

Hwang, Hae-shin, Dale Mortensen, and Robert Reed (1998). "Hedonic Wages and Labor Market Search." Journal of Labor Economics, v. 16, no. 4.` Jacobson, Louis, Robert LaLonde and Daniel Sullivan (1993). "Earnings Losses of Displaced Workers." American Economic Review, v. 83 no. 4: 685-709.

jovanovic : Jovanovic, Boyan (1979). "Job Matching and the Theory of Turnover." Journal of Political Economy, v. 87, no. 5: 972-990.

K+M : Kambourov, Gueorgui and Iorii Manovskii (2006). "Occupational Specificity of Human Capital." Working Paper.

K+W : Keane, Michael, and Kenneth Wolpin (1994). "The Solution and Estimation of Discrete Choice Dynamic Programming Models by Simulation and Interpolation: Monte Carlo Evidence." Review of Economics and Statistics, v. 76: 648-672.

K+w1 : Keane, Michael, and Kenneth Wolpin (1997). "The Career Decisions of Young Men." Journal of Political Economy, v. 105 : 474-521.

K+W2 : Keane, Michael, and Kenneth Wolpin (2001). "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment." International Economic Review, v. 42, No. 4: 1051-1103.

Lee, Donghoon (2005). "An Estimable Dynamic General Equilibrium Model of School, Work, and Occupational Choice." International Economic Review, v. 46: 1-34.

Lee, Donghoon and Kenneth Wolpin (2006). "Intersectoral Labor Mobility and the Growth of the Service Sector." Econometrica, v. 74, no. 1.

Light : Light, Audrey (2001) "In-School Work Experience and the Returns to Schooling." Journal of Labor Economics, v. 19, no. 1: pp. 65-93.

Manski, Charles and John Pepper (2000). "Monotone Instrumental Variables : With an Application to the Returns to Schooling." Econometrica, v. 68, no. 4: 997-1010.

McCall : McCall, Brian (1990). "Occupational Matching: A Test of Sorts." Journal of Political Economy, v. 98: 45-69.

McFadden, Daniel (1981). "Econometric Models of Probabilistic Choice." In C. Manski and D. McFadden (eds.) Structural Analysis of Discrete Data with Econometric Applications, pp. 198-272. MIT Press, Cambridge.

Mellow, Wesley and Hal Sider (1983). "Accuracy of Response in Labor Market Surveys: Evidence and Implications." Journal of Labor Economics, v. 1, no.4.

Miller : Miller, Robert A. (1984). "Job Matching and Occupational Choice." Journal of Political Economy, v. 92: 1086-1120.

neal : Neal, Derek (1999). "The Complexity of Job Mobility Among Young Men." Journal of Labor Economics, v. 17, No. 2.

Pavan, Ronni (2006). "Career Choice and Wage Growth." Working Paper. Ruhm, Christopher (1991). "Are Workers Permanently Scarred by Job Displacements?" American Economic Review, v. 81: 319-324.

rust : Rust, John (1987). "Optimal Replacement of GMC Bus Engines: An Empirical Model of Howard Zurcher." Econometrica, v. 55: 999-1033.

Rust, John (1997). "Using Randomization to Break the Curse of Dimensionality." Econometrica, v. 65, no. 3.

rust+phelan : Rust, John and Christopher Phelan (1997). "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets." Econometrica, v. 65: 781-831.

Stern, Steven (1997). "Simulation Based Estimation." Journal of Economic Literature, v. 35, no. 4: 2006-2039.

Stinebrickner : Stinebrickner, Todd (2001). "Compensation Policies and Teacher Decisions." International Economic Review, v. 42, No. 3: 751-779.

Topel, Robert (1991). "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority." Journal of Political Economy, v. 99: 145-176.

topel+ward : Topel, Robert and Michael Ward (1992). "Job Mobility and the Careers of Young Men." Quarterly Journal of Economics, v. 107: 439-479.

tyler : Tyler, John, Richard Murnane, and John Willett (2000). "Estimating the Labor Market Signalling Value of the GED." Quarterly Journal of Economics: 431-467.

Wolpin : Wolpin, Kenneth (1992). "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth." Journal of Political Economy, v. 100: 535-560.