Estimation of an Occupational Choice Model when Occupations are Misclassified

Abstract

This paper develops an empirical occupational choice model that corrects for misclassification in occupational choices and measurement error in occupation-specific work experience. The model is used to estimate the extent of measurement error in 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 effects of occupation-specific human capital on wages. The parameter estimates reveal that 9 percent of occupational choices in the 1979 cohort of the NLSY are misclassified. Ignoring misclassification leads to biases that affect the conclusions drawn from empirical occupational choice models.