Working Paper: NBER ID: w11031
Authors: Lalith Munasinghe; Nachum Sicherman
Abstract: A large portion of the variation in wages and wage growth rates among individuals is due to "unobserved" heterogeneity, and the source of individual heterogeneity is typically attributed to data limitations and/or the unobservability of certain productivity related factors. In this paper we develop a test that discriminates between two inherently unobservable sources of heterogeneity (both of which can clearly account for the variation in wages and wage growth rates): learning ability and workers' inter-temporal preferences (discounting). We apply this test to the large observed differences in wages and wage growth rates between smokers and non-smokers. The evidence supports the discounting hypothesis.
Keywords: No keywords provided
JEL Codes: J22; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Smoking (L66) | Individual Discount Rates (H43) |
| Individual Discount Rates (H43) | First Period Wages (J31) |
| First Period Wages (J31) | Wage Growth Rates (J39) |
| Smoking (L66) | Wage Growth Rates (J39) |
| Smoking (L66) | Learning Ability (G53) |
| Learning Ability (G53) | Wage Growth Rates (J39) |