Language Fluency and Earnings: Estimation with Misclassified Language Indicators

CentER Working Paper No. 1998-120

Posted: 24 Sep 1999

See all articles by Christian Dustmann

Christian Dustmann

University College London; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Date Written: 1998

Abstract

We use panel data from the German Socio-Economic Panel to estimate the determinants of language fluency of immigrants and its impact on earnings. Self reported measures of language proficiency contain substantial reporting errors. We specify a panel data model which takes explicit account of misclassification. We extend the existing literature on misclassification of categorical dependent variables by distinguishing between time persistent and time varying misclassification errors, using panel data. The repeated information on language fluency allows us also to distinguish between cohort effects and exposure effects. We then add a wage equation to the model and estimate it jointly with the speaking fluency equation. In this way, we take account of the two problems that may bias OLS estimates: misclassification errors and correlated unobserved individual heterogeneity in wages and speaking fluency. We find that both have important consequences for the estimated effect of speaking fluency on earnings.

JEL Classification: C23, J61

Suggested Citation

Dustmann, Christian and van Soest, Arthur H. O. and van Soest, Arthur H. O., Language Fluency and Earnings: Estimation with Misclassified Language Indicators (1998). CentER Working Paper No. 1998-120, Available at SSRN: https://ssrn.com/abstract=165659

Christian Dustmann

University College London ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5832 (Phone)
+44 20 7916 2775 (Fax)

Institute for Fiscal Studies (IFS)

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London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Arthur H. O. van Soest (Contact Author)

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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