Solely the differences in the average of the components of human capital endowment (education, experience and cognitive ability) explain the wage gap in the formal sector.
Applying Blinder-Oaxaca decomposition techniques and correcting for potential selection bias from sorting into the formal sector, i.e. registered employment, this study demonstrates that in the informal sector the differences in returns to components of human capital endowment, such as work experience, education and cognitive ability, explain large parts of the rural urban wage gap.
Such a gift would be the largest ever made to any of the 64 components of the State University of New York and would more than double Stony Brook's endowment.
This contrasts with the upward bias for schooling, suggesting that the underlying physical and job-related components of genetic endowments are negatively correlated with those for cognitive skills. .
These observations suggest the existence of self-selection into formal employment in rural and urban areas based on components of human capital endowment.
For China, she finds that urban work experience raises the probability of becoming a formal worker and that wage differences are mainly explained by observable components of human capital endowment.
Hence, including the migrant variable in the wage regression will show whether migrants experience an earnings penalty or earnings premium and whether this differs by components of human capital endowment.
That these higher wages exist, even after controlling for components of human capital endowment, costs of living and other characteristics is shown by, e.g., Glaeser & Maré (2001) for the U.S. When investigating rural urban wage differentials in Mexico, it is essential to take into account that the labour market is further divided into formal and informal employment.
Thus the concept of the "endowment effect" was born.
