Wage Differentials in Belgium Mincerian Wage Model

1. Introduction
1.1 Theoretical Background: Mincerian Model 1.2 Mincerian Wage Equation: (simple form)

2. Data information 3. Mincerian Model estimations and interpretations

3.1 Robustness of data 3.2 Explaining wage differentials 3.3 Returns to experience, Peak log earnings 3.4 Age-earning profiles 3.5 Extension - diminishing returns to schooling, interaction term s and ex

4. Summary and Conclusions 5. References

Empirical study written by Eigner Franz, a0301345 for PR Applied econometrics WS06/07: December 2006

Wage differentials in Belgium Mincerian Wage Model

Eigner Franz, WS06/07

1. Introduction
In this paper I use the widely accepted Mincerian Wage Model, based on the Human Capital Theory for analyzing wage differentials in Belgian households. Linear and interaction forms of dummy variables will be used extensively to capture effects of gender and region on wages. Rate of returns to education and effects of experience on wages will be estimated and age-earning profiles will be analyzed, comparing profiles by gender and education. Regression models are generated with Eviews5 using the ordinary least squares (OLS) procedure on cross-section data for 1517 households. It is given special attention to find empirical evidence for following questions / hypothesis: Are wage differentials (returns to education) by gender and by region statistically significant? The age/earnings profiles of men tend to be more concave and to fan out more than those for Women. The age/earnings profiles of more educated tend to be more concave and to fan out more than those for less educated ones. 1.1 Theoretical Background: Mincerian Model The human capital model developed by Mincer is a popular econometric model for analyzing differentials in earnings. Earnings are explained as a function of acquired human capital which is expressed as a function mainly of education (proxied by years of schooling completed) and experience, where it also assumes that there exists a depreciation of Human Capital at older age. This model can be expanded to include other factors that may influence earnings, such as gender and location. Hence this model assumes that individuals can be more productive by increasing their education / experience level, which leads further to higher earnings. This model views education as an investment in individual human capital, which consists of direct (tuition) and indirect (opportunity) costs but therefore builds up non-monetary capital which aims at gaining further capital. In the Mincerian model the individual tries to find its optimal investment in terms of its individual demand for education, as it chooses individually the optimal education level with the purpose to maximize utility/its life time earnings. General Assumptions (among others): Individual knows its monetary benefits, associated with the higher education level. Individuals cannot get a direct profit from their education at the moment they are in education. Cost of an additional year of education equals the lost wages one could earn in that time. 1.2 Mincerian Wage Equation: (simple form) lnW = a + b*S + c*EX + d*EX^2 + epsilon Epsilon normal distributed error term Dependent variables: lnWn logged net earning or lnWb logged gross earning
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Wage differentials in Belgium Mincerian Wage Model

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Explanatory variables: ex experience of the individual (on-the-job training/learning by doing) (ex=age-6-s) s schooling (in years) reg region (Flanders, Brussels, Walloon region) fem dummy for female coefficients: a intercept, indicates lnwn in the absence of experience and schooling. b the coefficient of s indicates the (private) rate of return to schooling - A linear relationship is assumed between the logged earnings and the number of years of education. This means that all years in school have the same return to the student or one could also say: one year in the kindergarten is as profitable as one year in the college. Econometric Problem: One may have to deal with an omitted variable bias, because abilities could be correlated with years of schooling. Since then the error term will reflect individual ability among others and the explanatory variable s is not exogenously anymore, which is a violation of the OLS assumption. This omitted variable bias may upward the estimated returns to schooling. One measure to eliminate this bias is to use panel data with fixed effects assumed, which is not possible with our available data. However Berndt mentions, that there does not yet appear to be convincing evidence that differences in abilities account for a sizable proportion of the earnings differentials among individuals who have differing amounts of schooling.

2. Data Information
Data come from the Panel Survey of Belgian Households (PSBH, 2000)1, which is a small national survey undertaken by a consortium of universities. For a sample of more than 6.000 individuals drawn randomly for the whole Belgian Population it provides among others data on wages and personal characteristics such as age, gender or education. This data set is useful to estimate Mincerian earnings equation and assess the impact of education on earnings. Stats Table
S Mean Median Maximum Minimum Std. Dev. 14.05113 14.00000 23.00000 5.000000 3.237761 EX 18.88114 19.00000 51.00000 0.000000 10.33549 AGE 38.93227 39.00000 73.00000 19.00000 9.360591 LNWB 2.551612 2.534012 4.057712 0.927374 0.359807 LNWN 2.112150 2.096587 3.465197 0.927374 0.287199 FEM 0.454183 0.000000 1.000000 0.000000 0.498062

One can see among others that schooling ranges from 5 to 23 years, the youngest person in this survey is 19 years old and that the amount of females in our sample is about 45%. Logged net wages (lnwn) are of course smaller than logged gross wages (lnwb), the median net wage amounts to exp(2,096587)= 8,13835 euro. Observations come from 3 regions: Brussels (b), Flanders(f), Walloon (w).

www.lisproject.org/techdoc/be/be00survey.pdf www2.econ.ucl.ac.be/~sexvdb/PSBH/instr_econ2233.htm

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Wage differentials in Belgium Mincerian Wage Model

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tabulate reg
reg | Freq. Percent Cum. ------------+----------------------------------B| 148 9.76 9.76 F| 797 52.54 62.29 W| 572 37.71 100.00 ------------+----------------------------------Total | 1,517 100.00

Most people in our sample come from Flanders with 52%, only about 10% from Brussels.

tabstat lnwn, by(reg) columns(variables) Summary statistics: mean by categories of: reg reg | lnwn ----+---------B | 2.146831 F | 2.103696 W | 2.115655 ----+---------Tot | 2.112414 --------------Descriptive Statistics for LNWN Categorized by values of FEM Date: 12/21/06 Time: 21:22 Sample: 1 1517 Included observations: 1517 FEM Mean 0 2.150942 1 2.066236 All 2.112414

This statistic shows us that households in Brussels have on average the highest earnings.

Std. Dev. 0.300739 0.263089 0.287257

Obs. 827 690 1517

This statistic indicates that the logged wage for men is on average higher than for women. Correlation matrix of the regressors
AGE EX LNWN S LNWB AGE 1.000000 0.950734 0.373273 -0.143837 0.368157 EX 0.950734 1.000000 0.253577 -0.443536 0.227122 LNWN 0.373273 0.253577 1.000000 0.269697 0.922293 S -0.143837 -0.443536 0.269697 1.000000 0.339355 LNWB 0.368157 0.227122 0.922293 0.339355 1.000000

One see: A higher s (schooling) is positively correlated with lnWn and negatively correlated with age. This may be because younger people generally choose to be for a longer time in school than older people, for instance their parents or grandparents. Correlation between schooling and experience is negative, which may be due to the fact that more educated people enter the labor market later than less educated ones. One has to be careful because high correlations between explanatory variables may lead to multicollinearity in our data.

3. Mincerian Model estimations and interpretations

For analyzing wage differentials by gender and region, dummy-variables will be used. Category: gender; Category: region, Characters: male, female Characters: Brussels, Flanders, Walloon region

Fem = 1, if individual is female = 0, if individual is male

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Wage differentials in Belgium Mincerian Wage Model

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Db =1, if individual comes from Brussels Dw =1, if individual comes from Walloon Region hence: men and people from Flanders are the reference group Equation 1: lnWn = b0 + b1*S + b2*EX + b3*EX^2 + b4*fem*S + b5*Db*S +b6*Dw*S+ epsilon Why OLS is used: I assume linear relationships between lnWn and explanatory variables. It can be shown that OLS delivers the best linear unbiased estimates, when typical OLS assumptions hold. Equation 1: lnwn s ex ex^2 fem*s dummyb*s dummyw*s c
Dependent Variable: LNWN Method: Least Squares Date: 01/09/07 Time: 22:02 Sample: 1 1517 Included observations: 1506 Excluded observations: 11 White Heteroskedasticity-Consistent Standard Errors & Covariance Variable Coefficient Std. Error t-Statistic Prob. S 0.043602 0.002557 17.05242 0.0000 EX 0.025604 0.002430 10.53878 0.0000 EX^2 -0.000327 6.28E-05 -5.206982 0.0000 FEM*S -0.002776 0.000884 -3.141146 0.0017 DUMMYB*S 0.000171 0.001558 0.109670 0.9127 DUMMYW*S -0.001998 0.000962 -2.075973 0.0381 C 1.195711 0.044566 26.83005 0.0000 R-squared 0.271166 Mean dependent var 2.112150 Adjusted R-squared 0.268249 S.D. dependent var 0.287199 S.E. of regression 0.245678 Akaike info criterion 0.035044 Sum squared resid 90.47583 Schwarz criterion 0.059758 Log likelihood -19.38782 F-statistic 92.95153 Durbin-Watson stat 1.874861 Prob(F-statistic) 0.000000

3.1 Robustness of data Some tests to check OLS assumptions to ensure OLS to be BLUE in our regression. One has to check data for Homoskedasticity, no autocorrelation2 and normal distribution because these are assumptions which provide efficient estimations when testing variables using the OLS procedure. I use the White Heteroskedasticity Test in order to control for Homoskedasticity, the Jarque-Bera Test in order to check for normal distribution and the Durbin Watson Test and LM Test to check for no autocorrelation, which measure the serial correlation in the residuals. Autocorrelation can be ruled out, but one has to recognize that residuals are not significantly normally distributed, although the histogram looks well bell-shaped.
Breusch-Godfrey Serial Correlation LM Test: F-statistic 3.223203 Probability Obs*R-squared 6.457356 Probability White Heteroskedasticity Test: F-statistic Obs*R-squared 0.040104 0.039610

2.952194 63.18821

Probability Probability

0.000006 0.000007

autocorrelation would not be a problem here, because cross-section data are used. Page 4 of 10

Wage differentials in Belgium Mincerian Wage Model

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300 250 200 150 100 50 0 -1.0 -0.5 0.0 0.5 1.0 Series: Residuals Sample 1 1517 Observations 1506 Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis Jarque-Bera Probability -1.79E-16 0.005821 1.303488 -1.203669 0.245187 -0.160775 5.206137 311.8949 0.000000

Our data unfortunately feature Heteroskedasticity, which is shown by the probability value of 0.000006, which is smaller than 0.05. This test result may be also traced back to missing variables or to a general linear misspecification of our model. Estimators and forecasts are still unbiased and consistent but on the other hand inefficient and no longer BLUE. One can use Newey-West HAC Standard Errors & Covariance which provides correct estimates of the coefficient covariances. By using generalized least squares procedure, one may get efficient estimates for heteroskedasticity (of unknown form) - Estimate Equation 1, then calculate squared residuals: genr residn = resid^2 - Regress residn on explanatory variables ls residn s ex ex^2 fem*s dummyb*s dummyw*s s^2 ex^2 ex^4 fem^2*s^2 dummyb^2*s^2 dummyw^2*s^2 c (could not use cross terms and squared terms because of near linear matrix) - calculating fitted values, which are then used as weights:
genr fittedn = residn - resid

Equation1w: weighted least squares

Dependent Variable: LNWN Method: Least Squares Date: 12/30/06 Time: 21:59 Sample: 1 1517 Included observations: 1506 Excluded observations: 11 Weighting series: SQR(FITTEDN) White Heteroskedasticity-Consistent Standard Errors & Covariance Variable Coefficient Std. Error t-Statistic Prob. S 0.042428 0.002950 14.38428 0.0000 EX 0.027743 0.002774 10.00075 0.0000 EX^2 -0.000375 6.96E-05 -5.389801 0.0000 FEM*S -0.002906 0.000932 -3.117412 0.0019 DUMMYB*S 0.000798 0.001742 0.458055 0.6470 DUMMYW*S -0.001674 0.001089 -1.537268 0.1244 C 1.191573 0.052355 22.75933 0.0000 Weighted Statistics R-squared 0.737954 Mean dependent var 2.130392 Adjusted R-squared 0.736905 S.D. dependent var 0.500760 S.E. of regression 0.256854 Akaike info criterion 0.124017 Sum squared resid 98.89478 Schwarz criterion 0.148732 Log likelihood -86.38502 F-statistic 87.08153 Durbin-Watson stat 1.881496 Prob(F-statistic) 0.000000 Unweighted Statistics R-squared 0.270370 Mean dependent var 2.112150 Adjusted R-squared 0.267449 S.D. dependent var 0.287199 S.E. of regression 0.245812 Sum squared resid 90.57463 Durbin-Watson stat 1.870978

However again White Test rejects null hypothesis of no heteroskedasticity (0,000000). One can also exclude observations with high estimated residuals to eliminate heteroskedasticity. When I use residunw < 0,15 (residuals of Eq1) as a condition for Equation 1, estimated regression shows no heteroskedasticity with White Test of 0.054817. However only 1135 observations are used then. One has to live with Heteroskedasticity here3. I will continue using Equation 1 In general one can say: the explanatory power of the model for the given data is small (R^2=0.27), but all explanatory variables are highly significant, except for the dummy variable for Brussels.

in other parts of this paper, heteroskedasticity can not be eliminated either Page 5 of 10

Wage differentials in Belgium Mincerian Wage Model

Eigner Franz, WS06/07

3.2 Explaining wage differentials (data of Equation 1 are used) 3.2.1 Men and women For men coefficient for schooling amounts to 0,043602, which means that 1 additional year in school is expected to deliver a rate of return to education of 4,36%, provided that values of all the other variables keep the same. On account of the high significance of the variable FEM*S, there seem to be differences in rate of return to education for men and women, controlling for schooling and given experience. For women rate of returns to education amounts to b0 + b4 = 0,040826, which is a bit lower than the value for men. In other words: The negative b4 indicates that women in general cannot profit that much from more education than men. Perhaps because their chosen supplementary education is often not that profitable in economy. If they behave as the average men and have the same qualifications, wages for women should equal wages for men, otherwise there may be real discrimination against women. Using the measure of Oaxaca to analyze gender discrimination would not be meaningful here, on account of missing regressors explaining lnwn. (R^2 too low) All in all in general our data prove that higher education leads to a significant increase in the expected average income. This goes hand in hand with the Human Capital Theory which says that more schooling increases productivity of a person. One also sees that experience has a positive (b2) and a negative effect (b3) in our regression as I expected. 3.2.2 Distinction between regions: Brussels, Flanders, and Walloon Region One has to read the results in relation to the reference group (Flanders). For Flanders (and for men), we get an estimation for b1 of 0,043602. Rate of returns to education in Flanders are not significantly different from the ones in Brussels. For the Walloon Region rate of returns to education amounts to b1+b5 = 0,041604 (for men only). This means that in the Walloon Region on average it is not that profitable for an individual to invest in education than in Brussels or Flanders. It may be reduced to the higher tax rates in Walloon region4, however the difference is quite small. 3.2.3 Distinction between net and gross salary Now I use logged net salary (lnWn) instead of logged gross salary as dependent variable. lnWb = b0 + b1*S + b2*EX+ b3*EX^2 + b4*fem*s + b5*Db*S + b6*Dw*S + epsilon Equation 2: lnwb s ex ex^2 fem*s dummyb*s dummyw*s c
Dependent Variable: LNWB Method: Least Squares Date: 12/21/06 Time: 23:08 Sample: 1 1517 Included observations: 1506 Excluded observations: 11 Variable Coefficient Std. Error S 0.063554 0.002800 EX 0.028414 0.002710 EX^2 -0.000317 6.51E-05 FEM*S -0.005526 0.001086 DUMMYB*S 0.000886 0.001779 DUMMYW*S -0.003481 0.001150 C 1.321540 0.051045

t-Statistic 22.69439 10.48431 -4.863149 -5.090257 0.498275 -3.028098 25.88970

Prob. 0.0000 0.0000 0.0000 0.0000 0.6184 0.0025 0.0000

see Vandenberghe, De la Croix: Human capital as a factor of growth and employment at the regional level. http://www2.econ.ucl.ac.be/~sexvdb/Papers/hcret1_be.pdf Table 20: Average and marginal tax rates, Page 31 Page 6 of 10

Wage differentials in Belgium Mincerian Wage Model

Eigner Franz, WS06/07

For the model with logged gross salary, one gets an estimation for b of 0,063554 which is much larger than for the one with logged net salary (b = 0.043602). One could interpret this in the following way: On account of progressive taxes, the benefits of more school years or simple more education decreases. Smaller taxes therefore could increase incentives of the population to accumulate more Human Capital. 3.3 Effect of experience, Peak log earnings Now I build up a simpler form of Equation 1 in order to calculate peak earnings dependent on the value of experience and analyze age earning profile for several groups, under the assumption of constant returns to schooling. lnwn = b1*s+b2*ex+b3*ex^2+b4*fem*s+c
Equation 35: lnwn s ex ex^2 fem*s c
Dependent Variable: LNWN Method: Least Squares Sample: 1 1517 Included observations: 1506 Excluded observations: 11 Variable Coefficient Std. Error t-Statistic Prob. S 0.042461 0.002193 19.36486 0.0000 EX 0.025246 0.002236 11.29064 0.0000 EX^2 -0.000322 5.38E-05 -5.990941 0.0000 FEM*S -0.002762 0.000898 -3.076859 0.0021 C 1.205878 0.041762 28.87517 0.0000 R-squared 0.268744 Mean dependent var 2.112150 Adjusted R-squared 0.266795 S.D. dependent var 0.287199 Sum squared resid 90.77647 Schwarz criterion 0.053358

effect of experience on log earnings: d lnwn /d ex = b2 +2*b3ex depends only on experience Because the earnings function is concave in experience, one can calculate years of experience for which lnWn is greatest. d lnwn /d ex = b2 +2*b3ex = 0 ex* = -b2/2b3 in our case: -0.025246/ 2*-0.000322= 39,20 Peak earnings occur at x*= 39,20 years, which is independent from schooling.. However age at which earnings peak will vary with schooling. (age=ex+6+s) For the least educated people (with 5 years in school), peak earnings occur at the age of 50,2 and for the best educated (with 23 years in school) at the age of 68,29. 3.4 Age-earning profiles Estimate coefficients for basic Mincerian model separately for 2 groups (men, women), which means creating 2 models, taking only data for men respectively for women. Then calculate fitted values of regression using mean values of the regressors.

Heteroskedasticity in our data Page 7 of 10

Wage differentials in Belgium Mincerian Wage Model

Eigner Franz, WS06/07

By gender: male and female

Mean values: fem=1, mean (schooling) = 14.08772 fem =0, mean(schooling) = 14.02068
Equations 4a and 4b: lnwn s ex ex^2 c
Dependent Variable: LNWN Method: Least Squares Date: 12/28/06 Time: 01:22 Sample(adjusted): 828 1517 IF FEM=1 Included observations: 684 after adjusting endpoints Variable Coefficient Std. Error t-Statistic S 0.045235 0.003505 12.90448 EX 0.025355 0.003099 8.182266 EX^2 -0.000357 7.77E-05 -4.598297 C 1.135183 0.063585 17.85306 R-squared 0.248314 Mean dependent var Adjusted R-squared 0.244998 S.D. dependent var S.E. of regression 0.228430 Akaike info criterion Sum squared resid 35.48268 Schwarz criterion Dependent Variable: LNWN Method: Least Squares Date: 12/28/06 Time: 01:21 Sample(adjusted): 1 827 IF FEM=0 Included observations: 822 after adjusting endpoints Variable Coefficient Std. Error t-Statistic S 0.039171 0.002824 13.87106 EX 0.026715 0.003202 8.343608 EX^2 -0.000331 7.49E-05 -4.419385 C 1.230651 0.055857 22.03227 R-squared 0.266599 Mean dependent var Adjusted R-squared 0.263909 S.D. dependent var S.E. of regression 0.258182 Akaike info criterion Sum squared resid 54.52613 Schwarz criterion

Prob. 0.0000 0.0000 0.0000 0.0000 2.066717 0.262893 -0.109340 -0.082861

Prob. 0.0000 0.0000 0.0000 0.0000 2.149955 0.300926 0.134549 0.157477

Lnwage(age) = b0*mean(s) + b1*(age-6-mean(s))+ b2*(age-6-mean(s)^2) +c ; age=ex+6+s

For fem=1
Lnwagef(age) := 0.045235*14.08772+ 0.026715 * (age-6- 14.08772) + -0.000357* (age-614.08772)^2 + 1.135183

For fem=0
Lnwagem (age): = 0.039171*14.02068 + 0.025355*(age-6- 14.02068) + -0.000331* (age-614.02068)^2 + 1.230651

Graphic: for men (blue) and women (red)

lnwage

age

We see: Age/earnings profiles of women tend to be a little bit more concave, but age-earning profile of men tend to fan out a little bit more than those for women, which is a contradiction to the results we got above.6 So earnings of men are in general expected to be a little bit larger but they are expected to increase a little bit slower with age than earnings of women. One can use a Chow-test to check if these small differences in estimates between the 2 models are also statistically significant.
unrestricted models: RSS(1) = 35.48268 (fem=1 equation4a), RSS(2) = 54.52613 (fem =0 equation4b) RSS(3)= RSS(1)+RSS(2) = 90,01 restricted model: RSS* = 90,77647 (complete sample, with fem*s variable,
6

equation 3)

compare: smaller returns to education for women than for men when using slope dummy variables Page 8 of 10

Wage differentials in Belgium Mincerian Wage Model

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n = 1506 because 1 observation is excluded from regression on account of failing data k+1 number of regressors = 5 F = ( RSS*- RSS(3) ) / k ---------------------------- = RSS(3) / (n 2(k+1)) 0,1916175 / 0,060167 = 3,18

The critical value is about 1.96, when we assume a level of significance of 5%. 3,18 > 1,96, so H0 is rejected, one can say that coefficients of the explanatory variables of the 2 equations are not the same on the level of significance of 5%.

By education: more educated and less educated people

Mean values: s<12 mean(s) = 9.394161 s>18 mean (s) =20.23894 Equations 5a and 5b7
Dependent Variable: LNWN Method: Least Squares Sample(adjusted): 9 1499 IF S>18 Included observations: 113 after adjusting endpoints Variable Coefficient Std. Error t-Statistic Prob. S 0.039825 0.020275 1.964272 0.0520 EX 0.026370 0.008386 3.144618 0.0021 EX^2 -0.000354 0.000229 -1.547491 0.1246 C 1.165606 0.406257 2.869137 0.0049 Dependent Variable: LNWN Method: Least Squares Sample(adjusted): 24 1514 IF S<12 Included observations: 274 after adjusting endpoints Variable Coefficient Std. Error t-Statistic Prob. S 0.044515 0.009594 4.639825 0.0000 EX 0.020043 0.006288 3.187485 0.0016 EX^2 -0.000204 0.000121 -1.689147 0.0923 C 1.209545 0.130003 9.304009 0.0000

For s>18
Lnwage(age) := 0.039825*20.23894+ 0.026370* (age-6- 20.23894) + -0.000354* (age-6-20.23894)^2 + 1.165606

For s<12
Lnwage(age) := 0.044515*9.394161+ 0.020043* (age-6- 9.394161) -0.000204* (age-6-9.394161)^2 + 1.209545

Graphic: more educated (blue), less educated (pink)

lnwage

Age Results are fulfilling our expectations. Because after Berndt, when abilities are correlated with years of schooling and if individuals with more schooling receive more on-the-job training, then age-earnings profiles tend to be more concave and fan out more for people with higher education. 8 Only in the beginning, less educated are expected to have higher earnings in our graphic. On account of the clear result I skip the Chow Test controlling for statistical significance.
7 8

heteroskedasticity in 5b is ignored here See Berndt, page 163 Page 9 of 10

Wage differentials in Belgium Mincerian Wage Model

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3.5 Extension: diminishing returns to schooling, interaction term s and ex One can take into account the assumption that individuals with more schooling receive more on-the-job training by introducing an interaction term for experience and schooling. I also include the assumption of the existence of diminishing rates of returns, by including s^2. lnWn = b0 + b1*S + b2*ex + b3*ex^2 + b4*s^2 + b5*s*ex + epsilon Equation 6: lnwn s ex ex^2 s^2 s*ex c
Dependent Variable: LNWN Method: Least Squares Sample: 1 1517 Included observations: 1506 Excluded observations: 11 Variable Coefficient Std. Error t-Statistic S 0.060746 0.017268 3.517766 EX 0.022813 0.005031 4.534393 EX^2 -0.000293 6.18E-05 -4.737154 S^2 -0.000752 0.000502 -1.498052 S*EX 0.000127 0.000239 0.531974 C 1.087925 0.156276 6.961578 R-squared 0.266254 Mean dependent var Adjusted 0.263808 S.D. dependent var R-squared

Prob. 0.0004 0.0000 0.0000 0.1343 0.5948 0.0000 2.11215 0.28719

Wald Test: Equation: Untitled Test Statistic Value F-statistic 2.169124 Chi-square 4.338248 Null Hypothesis Summary: Normalized Restriction (= 0) C(4) C(5)

df Probability (2, 1500) 0.1146 2 0.1143

Value -0.000752 0.000127

Std. Err. 0.000502 0.000239

We see: Adjusted R^2 is a bit lower than for Equation 1, therefore our model is not able to explain a greater part of variance in lnwn. Interaction term schooling*experience and s^2 are statistically not significant. So there is no significant empirical evidence in our data for our 2 assumptions above.

4. Summary and Conclusions

The Mincerian Wage Model was used to analyze wage differentials, to calculate rate of returns to education, age profiles and to capture effects of gender and region on wages. Our results in general go hand in hand with our hypotheses. I found empirical evidence in the data for significant wage discrimination against women, controlling for schooling but only very small wage differentials by region, discriminating Walloon Region using slope dummy variables. However empirical evidence on discrimination of women seems to be not clear, because age-earning profile of women tend to be a little bit more concave than for men. Ageearning profile of more educated people tend to be much more concave and fan out more than for less educated ones, going hand in hand with our expectations. Assumptions of diminishing returns to scale or interaction between schooling and experience can not be confirmed in our data with significance. Problems could arise in our model on account of the omitted variable bias due to a possible correlation between (unobserved) abilities and years of schooling and on account of prevailing heteroskedasticity in our data.

5. References
Berndt, Ernst R. (1991): The Practice of Econometrics: Classic and Contemporary, Addison-Wesley, Reading Massachusetts. Wooldridge, Jeffrey M. (2003): Introductory Econometric, Thomson, South-Western. http://www2.econ.ucl.ac.be/~sexvdb/Papers/hcret1_be.pdf Vandenberghe, Vincent and de la Croix, David: Human capital as a factor of growth and employment at the regional level. The case of Belgium. March 2004, Department of Economics, Univ. cath. Louvain.

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