Mincer Wage Equation

The Mincer wage equation is the standard regression model for the returns to education: $\log \text{wage}_i = \beta_0 + \beta_1 \text{educ}_i + \beta_2 \text{exper}_i + \beta_3 \text{exper}_i^2 + u_i$. The log-level functional form means $\hat\beta_1$ is approximately the percentage wage gain per extra year of schooling; the experience quadratic captures the concave wage-tenure profile.

When to use

Any returns-to-education question starts here. Two standard threats: omitted ability bias (smart people get more schooling and earn more, so OLS overstates the return — typical OLS estimate ~10.7% per year is biased upward) and sample selection in datasets like Mroz where wages are observed only for labour-force participants (corrected via Heckman). The textbook fixes are parental-education instruments for the first and Heckman correction for the second.