CONSTRUCTING MEASURES OF EARNINGS POTENTIAL FOR USE IN CHAPTER 11
This appendix describes the procedures for constructing the six measures of earnings potential used in chapter 11, which involved combining data from our study with data from the 1990 Census and the High School and Beyond study in the two steps described in the following.
We first used the 1990 Census data to estimate sex- and education-specific earnings equations as functions of potential work experience. Following Mincer (1974), we approximate work experience as the difference between current age and the normative age at which the respondent's highest level of education is attained. Letting j denote education (1 = less than high school, 2 = high school, 3 = some college, and 4 = college+), letting k denote years of experience (1, 2,…, K), and assuming all workers permanently exit the labor force (retire) at age 60, we have the following approximations:(D.1)
Letting i denote sex (1 = male and 2 = female), we estimate earnings as a nonparametric function of education, sex, and work experience for the entire i × j ×
*Appendix D draws heavily from Xie et al. (2003).