<p>Consider the Mincer model:
<span class="math-container">$\log(y)=b_0 + b_1S + b_2E + b_3E^2+u$</span>
where S is schooling, Y is salary (monthly) and E is experience. I want to verify the following statements:</p>

<ol>
<li><p>The return for 1 extra year of education is <span class="math-container">$\hat{b_1}*100$</span>%</p></li>
<li><p>If we knew E (experience) for a particular person, his return for 1 extra year of experience is <span class="math-container">$\hat{b_2}*E+\hat{b_3}*E^2$</span>. This one I doubt more.</p></li>
</ol>

<p>Thanks in advance.  </p>

CC BY-SA 4.0
2018-09-25T04:45:12.997Z
You wouldn't add in $E$ with the coefficients. I'm not sure if there's a clear specification for the return on a year of experience. $b_2, b_3$ both describe the returns on experience, where the $E^2$ coefficient captures the concavity of the earnings function against age, if I recall correctly.
Kitsune Cavalry
CC BY-SA 4.0
2018-09-25T09:20:08.883Z
Do you remember a reference? thank you.
monalisa
CC BY-SA 4.0
2018-09-26T00:09:11.427Z
About 2: Holding $S$ and $u$ fixed, when $E$ increases from $e$ to $e+1$, $\log(y)$ increases by $b_2 + 2b_3 (e+1)$, which is the effect of an increases of $E$. It is thus safe to say that the return on experience is $(b_2 + 2b_3 E)\times 100\%$ if you are happy with replacing $E+1/2$ with $E$.
chan1142
CC BY-SA 4.0
2018-09-26T10:52:47.620Z
Oops. It's $b_2 + 2b_3 (e+1/2)$, not $b_2 + 2b_3 (e+1)$.
chan1142
<econometrics><statistics>
How to interpret Mincer equation coefficients
monalisa
# How to interpret Mincer equation coefficients

(Asked by: username_0 on 2018-09-25)

Consider the Mincer model:
$\log(y)=b\_0 + b\_1S + b\_2E + b\_3E^2+u$
where S is schooling, Y is salary (monthly) and E is experience. I want to verify the following statements:

1. The return for 1 extra year of education is $\hat{b\_1}\*100$%
2. If we knew E (experience) for a particular person, his return for 1 extra year of experience is $\hat{b\_2}\*E+\hat{b\_3}\*E^2$. This one I doubt more.

Thanks in advance.

**Tags:** econometrics, statistics

> **Comments:**
> **username_1**: You wouldn't add in $E$ with the coefficients. I'm not sure if there's a clear specification for the return on a year of experience. $b_2, b_3$ both describe the returns on experience, where the $E^2$ coefficient captures the concavity of the earnings function against age, if I recall correctly.  
> **username_0**: Do you remember a reference? thank you.  
> **username_2**: About 2: Holding $S$ and $u$ fixed, when $E$ increases from $e$ to $e+1$, $\log(y)$ increases by $b_2 + 2b_3 (e+1)$, which is the effect of an increases of $E$. It is thus safe to say that the return on experience is $(b_2 + 2b_3 E)\times 100\%$ if you are happy with replacing $E+1/2$ with $E$.  
> **username_2**: Oops. It's $b_2 + 2b_3 (e+1/2)$, not $b_2 + 2b_3 (e+1)$.  

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