Abstract

One of the most widely estimated regression equations in economics is that of the earnings or wage function, which relates a measure of market remuneration (e.g., hourly wage rates, annual earnings) to measures of human capital stocks such as completed schooling and market work experience. In the first half of this paper, I address two related questions: (1) What interpretation should be given to the wage equation? and (2) Why should we care about estimating it? The second half of the paper is devoted to the consideration of education policies, such as changes in college tuition costs, in which the estimation and interpretation of wage equations play important roles.

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