Working Paper: NBER ID: w23669
Authors: Robert M. Sauer; Christopher R. Taber
Abstract: This paper has two main parts. In the first, we describe a method that smooths the objective function in a general class of indirect inference models. Our smoothing procedure makes use of importance sampling weights in estimation of the auxiliary model on simulated data. The importance sampling weights are constructed from likelihood contributions implied by the structural model. Since this approach does not require transformations of endogenous variables in the structural model, we avoid the potential approximation errors that may arise in other smoothing approaches for indirect inference. We show that our alternative smoothing method yields consistent estimates. The second part of the paper applies the method to estimating the effect of women’s fertility on their human capital accumulation. We find that the curvature in the wage profile is determined primarily by curvature in the human capital accumulation function as a function of previous human capital, as opposed to being driven primarily by age. We also find a modest effect of fertility induced nonemployment spells on human capital accumulation. We estimate that the difference in wages among prime age women would be approximately 3% higher if the relationship between fertility and working were eliminated.
Keywords: Indirect Inference; Importance Sampling; Women's Wage Growth; Human Capital; Fertility
JEL Codes: C51; J16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| women's fertility (J13) | wage growth (J31) |
| curvature in human capital accumulation function (D29) | curvature in wage profile of women (J31) |
| previous human capital (J24) | wage growth (J31) |
| age (J14) | curvature in wage profile of women (J31) |
| reentering labor market after childbirth (J22) | wage growth (J31) |