Estimation of an Occupational Choice

This paper examines occupational choices using a discrete choice model that accounts for the fact that self-reported occupation data is measured with error. Despite evidence from validation studies which suggests that there is a substantial amount of measurement error in self-reported occupations, existing research has not corrected for classi…cation error when estimating models of occupational choice. This paper develops a panel data model of occupational choices that corrects for misclassi…cation in occupational choices and measurement error in occupation-speci…c work experience variables. The model is used to estimate the extent of measurement error in self-reported occupation data and quantify the bias that results from ignoring measurement error in occupation codes when studying the determinants of occupational choices and estimating the e¤ects of occupation-speci…c human capital on wages. The parameter estimates reveal that 9% of occupational choices in the 1979 cohort of the National Longitudinal Survey of Youth are misclassi…ed. Ignoring misclassi…cation biases the median parameter in the occupational choice model by 25%. JEL codes: J24, C25, C15 Keywords: Occupational choice, Misclassi…cation, Discrete choice, Simulation methods I would like to thank John Bound and Steven Stern for many helpful comments and discussions during the course of this project. I would also like to thank Timothy Erickson, Loren Smith, and seminar participants at the University of Virginia, the Society of Labor Economists Annual Meeting, and the Bureau of Labor Statistics for helpful comments. Finally, I gratefully acknowledge funding for this research provided by a National Institute on Aging Post Doctoral Fellowship. Email: [email protected]. Phone: (202) 691-6593. Mail: Bureau of Labor Statistics, Postal Square Building Room 3105 MC 204, 2 Massachusetts Ave. N.E., Washington, D.C. 20212-0001. All views and opinions expressed in this paper are those of the author and do not necessarily represent the views and opinions of the U.S. Bureau of Labor Statistics.