Occupational Choice and Returns to Skills in the United States: Evidence from the NLSY79 and O*NET
Juan Chaparro, University of Minnesota
Occupational choices carry substantial information about a worker's human capital. They are informative about a worker's education, experience and skills. Workers, however, self-select into occupations. Therefore, occupational indicators are endogenous variables in any wage equation. This paper defines an occupation as a vector in a space of skill requirements, and proposes an instrumental variables approach to deal with endogeneity. I combine data from the National Longitudinal Survey of Youth, 1979 Cohort (NLSY79), with data from the Occupational Information Network (O*NET), a publicly available database sponsored by the U.S. Department of Labor. By doing so, I instrument the math requirements of a worker's occupation in 2010 with the math requirements of the worker's preferred occupation back in 1979. A similar instrument is used for language requirements. Such procedure allows me to measure the wage return to math and language skills for individuals represented by the NLSY79 sample.