Download - I: NLSY79 I.A. NLSY79 Variables

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DATAAPPENDIX

SMARTANDILLICIT:WHOBECOMESANENTREPRENEURANDDOTHEYEARNMORE?

ROSSLEVINEANDYONARUBINSTEIN

July2016

I:NLSY79

I.A.NLSY79Variables

Earnings: AnnualHoursWorked

NUMBEROFHOURSWORKEDINPASTCALENDARYEARR24456.00

Full-time,Full-Year

Iftherespondent(1)works50ormoreweeksperyearand(2)works2000ormorehoursperyear,and(3)works40ormorehoursperweek,thenFull-time,Full-yearissetequaltoone,otherwiseitissetequaltozero.

Earnings Wagesplusincomefrombusiness.DeflatedbytheCPIcorrespondingtowhenthoseearningswererealized.Earningsarein2010prices.

DemographicsandFamily:

Age Theageoftherespondent.Currentyear–yearofbirth.CollegeGraduate(ormore)

Graduatedfromcollegeorobtainedanadvanceddegree.

Educationalattainment(sixcategories)

Thesixeducationalattainmentcategories:(i)highschooldropouts:lessthan12yearsofschooling(ii)GEDdegree(iii)highschoolgraduates:12yearsofschooling(iv)hadsomecollegeeducation:13-15yearsofschooling(i)collegeeducation:16yearsofschooling(vi)advancedstudies:17+yearsofschooling.Thesearemeasuredattheendoftherespondent’seducationalexperience,sothattheydonotvaryovertimeforarespondent.

FamilyIncomein1979

Theincomeoftherespondent’sfamilyin1979in2010-yearprices.Inthosecaseswhere1979ismissing,weusetheearliestyearbetween1980and1981withanon-missingvalue.SeesectionI.E.NLSY79FamilyIncomein1979fordetails.

Father'sEducation

Yearsofschoolingoftherespondent'sfather.SeeSectionI.D.NLSY79ImputationofMotherandFatherEducationfordetails.

Female Equalsoneiftherespondentreportsbeingfemaleandzerootherwise.

Mother'sEducation

Yearsofschoolingoftherespondent'smother.SeeSectionI.D.NLSY79ImputationofMotherandFatherEducationfordetails.

Potentialexperience

Equalstheageoftherespondentminustheyearsofschoolingminussix,or,ifthiscomputationislessthanzero,thenpotentialexperiencesetequaltozero.

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Twoparentfamily(14)

Equalsoneiftherespondentlivedinatwo-parentfamilyattheageof14.

White Equalsoneiftherespondentreportsbeingwhiteandzerootherwise.

Yearofbirth Thecalendaryearinwhichtherespondentwasborn.YearsofSchooling

Therespondent’smaximumnumberofyearsofschooling,soitdoesnotvaryovertimeforarespondent

Traits,etc. AFQT ArmedForcesQualificationsTestscoremeasurestheaptitudeand

trainabilityoftherespondent.Collectedduringthe1980NLSY79survey,theAFQTscoreisbasedonarithmeticreasoning,worldknowledge,paragraphcomprehension,andnumericaloperations.Itisfrequentlyemployedasageneralindicatorofcognitiveskills.ThisAFQTscoreismeasuredasapercentileoftheNLSY79survey,withamedianvalueof50.

AppliedforPatent(residualstandardized)

WesetAppliedforPatentequaloneiftherespondentin2010answered,"yes"tothequestion,"Hasanyone,includingyourself,everappliedforapatentforworkthatyousignificantlycontributedto?"SinceAppliedforPatentisobtaineddecadesafterapersonbecomesprimeage,wecollecttheresidualsfromaregressionofAppliedforPatentoneducation,AFQT,RosenbergSelf-Esteem,RotterLocusofControl,theIllicitIndex,andyearofbirth.WethenstandardizetheseresidualstoobtainAppliedforPatent(residualstandardized),whichhasameanofzeroandastandarddeviationofone.

Entrepreneur(residualstandardized)

WesetthevariableEntrepreneurequalsoneiftherespondentin2010answers,"yes"tothequestion,"Doyouconsideryourselftobeanentrepreneur?”Inposingthequestion,theNLSY79definesanentrepreneuras“someonewholaunchesabusinessenterprise,usuallywithconsiderableinitiativeandrisk."SinceEntrepreneurisobtaineddecadesafterapersonbecomesprimeage,wecollecttheresidualsfromaregressionofEntrepreneuroneducation,AFQT,RosenbergSelf-Esteem,RotterLocusofControl,theIllicitIndex,andyearofbirth.WethenstandardizetheseresidualstoobtainEntrepreneur(residualstandardized),whichhasameanofzeroandastandarddeviationofone.

Force(raw) Thisequalsoneiftherespondentreportsinthe1980surveyeverusingforcetoobtainsomething.

IllicitActivityIndex(standardized)

Thisisconstructedbasedontheanswersto20questionsinthe1980survey,where17arequestionsabout"delinquency"and3areaboutruninswiththe"police."Thedelinquencyquestionscoverissuesassociatedwithdamagingproperty,fightingatschool,shoplifting,robbery,usingforcetoobtainthings,assault,threateningtoassaultsomebody,druguse,dealingdrugs,gambling,etc.The"police"questionsinvolvebeingstoppedbythepolicy,chargedwithanillegalactivity,orconvicted,allforactivitiesother

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thanminortrafficoffenses.Foreachquestion,weassignthevalueoneifthepersonengagedinthatactivityandzerootherwise.Foreachrespondent,wethenaddthesevaluesanddivideby20.Wethenstandardizethevaluesbysubtractingthesamplemeananddividingbythestandarddeviation,sothattheIllicitActivityIndexhasameanofzeroandastandarddeviationofone.WeprovideamoredetailedexplanationinSectionI.B.NLSY79IllicitActivityIndex.

RosenbergSelf-Esteem(standardized)

RosenbergSelf-Esteemscoreisbasedonaten-partquestionnairegiventoallNLSY79participantsin1980.Itmeasuresthedegreeofapprovalordisapprovalofone’sself.Thevaluesrangefromsixto30,wherehighervaluessignifygreaterself-approval.RosenbergSelf-Esteem(standardized)standardizesthescore,sothatithasameanofzeroandastandarddeviationofone.

RotterLocusofControl(standardized)

RotterLocusofControlmeasuresthedegreetowhichrespondentsbelievetheyhaveinternalcontroloftheirlivesthroughself-determinationrelativetothedegreethatexternalfactors,suchaschance,fate,andluck,shapetheirlives.Itwascollectedaspartofapsychometrictestinthe1979NLSY79survey.TheRotterLocusofControlrangesfrom4to16,wherehighervaluessignifylessinternalcontrolandmoreexternalcontrol.Thisisstandardized,sothatithasameanofzeroandastandarddeviationofone.

Steal50orless(raw)

Thisequalsoneiftherespondentreportsinthe1980surveystealingsomethingworth$50orlessduringtheyear.

StoppedbyPolice(raw)

Thisequalsoneiftherespondentreportsinthe1980surveyeverbeingstoppedbythepolice.

Employmenttype

Salaried FromtheNLSY79’sunifiedclassofworker(R24455.10),therearefourresponsesforworkingrespondents:(1)Privatecompany,includingnon-profit,(2)government,(3)self-employed,and(4)thoseworkingwithoutpay,includinginfamilybusinesses.WesetSalariedequaltooneiftherespondent’sclassofworkeriseither“(1)”or“(2)”andzerootherwise.

Self-employed FromtheNLSY79’sunifiedclassofworker(R24455.10),therearefourresponsesforworkingrespondents:(1)Privatecompany,includingnon-profit,(2)government,(3)self-employed,and(4)thoseworkingwithoutpay,includinginfamilybusinesses.WesetSelf-employedequaltooneiftherespondent’sclassofworkeris“(3)”andzerootherwise.

IncorporatedSelf-employed

Ifarespondentisself-employed,theNLSY79furtheraskswhetherthebusinessisincorporatedornot.Iftherespondentisself-employedandthebusinessisincorporated,thenIncorporatedSelf-employedequalsoneanditiszerootherwise.SeeSectionI.C.NLSY79IncorporatedSelf-EmploymentCodingDetails.

UnincorporatedSelf-employed

Ifarespondentisself-employed,theNLSY79furtheraskswhetherthebusinessisincorporatedornot.Iftherespondentisself-

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employedandthebusinessisunincorporated,thenUnincorporatedSelf-employedequalsoneanditiszerootherwise.

I.B.NLSY79IllicitActivityIndex

Inthissubsection,wefirstdescribethecoredatafromtheNLSY79surveyandthenprovidedetailsontheconstructionoftheindex

I.B.1.TheCoreData

TheIllicitActivityindexisbasedonquestionsfromthe1980survey.Weusetwotypesofquestionsonillicitactivities“delinquency”and“police”questions.

Weusedataon17ofthe20questionson“delinquency”providedbytheNLSY79.Wedonotusetheotherthreequestionsthatwereonlyposedtopeoplewhowere17yearsoldoryoungerin1979.Thus,thesequestionswereonlyaskedofabout30%ofthesample(3,898outof12,686).Includingthesevariableswouldreducethesamplebyabout70%.Thesurveyasksaboutwhether—andhowmanytimes—therespondentengagedinthedelinquentact.Forexample,oneofthequestionsaskshowmanytimestherespondentsmokedmarijuana/hashishinthepastyear.Welistall20questionsbelowandindicatewhichonesweuseinconstructingtheIllicitActivityIndex.(Thisistitled“Tableonthedistributionofresponsestoquestionsondelinquencyandpolice.”)

Usetwoversionsoftheresponsestothedelinquencyquestions:

(1)Thereisthe“0-6intensive”versionthatusestheactualnumberoftimestherespondentengagedinthedelinquentact,wheretherearesevenanswerscategorizedfromzerotosix;and

(2)Thereisourprimary,core(“extensive”)versionthatusesthevaluesofzerooroneincodingtheresponsestothedelinquencyquestions,i.e.,wecodethevaluesaseitherthepersondidordidnotengageintheactatleastonce.

Withrespecttothe“police”questions,weusethethreequestionsoninteractionswiththepoliceprovidedbytheNLSY79.Thesethreequestionsofferzero/oneoptionsforresponses.Forexample,oneofthequestionsasks,wereyou“…everconvictedonillegalactivitychargesotherthanminortrafficoffense?”Welistthesequestionsbelowalso.

Hereisalistingofthecoredata:

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NLSY79ReferenceNumber

QuestionName Definition

Yearofsurvey Sample

DelinquencyquestionsusedinconstructingtheIllicitActivityIndex

R03049.00 DELIN-4

ILLEGAL ACTIVITY 80 INT - TIMES INTENTIONALLY DAMAGED PROPERTY IN PAST YEAR 1980 ALL

R03050.00 DELIN-5ILLEGAL ACTIVITY 80 INT - TIMES FOUGHT AT SCHOOL OR WORK IN PAST YEAR 1980 ALL

R03051.00 DELIN-6

ILLEGAL ACTIVITY 80 INT - TIMES SHOPLIFTED IN PAST YEAR 1980 ALL

R03052.00 DELIN-7

ILLEGAL ACTIVITY 80 INT - TIMES STOLEN OTHER'S BELONGINGS PAST YR (WORTH <$50) 1980 ALL

R03053.00 DELIN-8

ILLEGAL ACTIVITY 80 INT - TIMES STOLEN OTHER'S BELONGINGS PAST YR (WORTH >$50) 1980 ALL

R03054.00 DELIN-9

ILLEGAL ACTIVITY 80 INT - TIMES USED FORCE TO OBTAIN THINGS IN PAST YEAR 1980 ALL

R03055.00

DELIN-10

ILLEGAL ACTIVITY - TIMES SERIOUSLY THREATENED TO HIT/HIT SOMEONE PAST YEAR 1980 ALL

R03056.00

DELIN-11

ILLEGAL ACTIVITY 80 INT - TIMES ATTACKED W/INTENT TO INJURE/KILL IN PAST YEAR 1980 ALL

R03057.00

DELIN-12

ILLEGAL ACTIVITY 80 INT - TIMES SMOKED MARIJUANA/HASHISH IN PAST YEAR 1980 ALL

R03058.00

DELIN-13

ILLEGAL ACTIVITY - TIMES USED OTHER DRUGS/CHEMICALS TO GET HIGH IN PAST YEAR 1980 ALL

R03059.00

DELIN-14

ILLEGAL ACTIVITY 80 INT - TIMES SOLD MARIJUANA/HASHISH IN PAST YEAR 1980 ALL

R03060.00

DELIN-15

ILLEGAL ACTIVITY 80 INT - TIMES SOLD HARD DRUGS IN PAST YEAR 1980 ALL

R03061.00

DELIN-16

ILLEGAL ACTIVITY 80 INT - TIMES ATTEMPTED TO "CON" SOMEONE IN PAST YEAR 1980 ALL

R03062.00

DELIN-17

ILLEGAL ACTIVITY 80 INT - TIMES TAKEN AUTO W/OUT OWNER PERMISSION IN PAST YEAR 1980 ALL

R03063.00

DELIN-18

ILLEGAL ACTIVITY 80 INT - TIMES BROKEN INTO A BUILDING IN PAST YEAR 1980 ALL

R03064.00

DELIN-19

ILLEGAL ACTIVITY 80 INT - TIMES KNOWINGLY SOLD/HELD STOLEN GOODS IN PAST YEAR 1980 ALL

R03065.00

DELIN-20

ILLEGAL ACTIVITY 80 INT - TIMES AIDED IN GAMBLING OPERATION IN PAST YEAR 1980 ALL

Policequestions(zero/oneanswers)

R03067.00 POLICE-1

EVER "STOPPED" BY POLICE FOR OTHER THAN MINOR TRAFFIC OFFENSE? 1980 ALL

R03071.00 POLICE-2

EVER CHARGED WITH ILLEGAL ACTIVITY? 80 INT (EXC MINOR TRAFFIC OFFENSE) 1980 ALL

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R03078.00 POLICE-3

EVER CONVICTED ON ILLEGAL ACTIVITY CHARGES OTHER THAN MINOR TRAFFIC OFFENSE? 1980 ALL

DelinquencyquestionsNOTusedinconstructingtheIllicitActivityIndexNLSY79ReferenceNumber

QuestionName Definition

Yearofsurvey Sample

R03046.00 DELIN-1ILLEGAL ACTIVITY 80 INT - TIMES RUN AWAY FROM HOME IN PAST YR (AGE 17 OR UNDER) 1980 R<=17

R03047.00 DELIN-2ILLEGAL ACTIVITY 80 INT - TIMES SKIPPED SCHOOL DAY IN PAST YR (AGE 17 OR UNDER) 1980 R<=17

R03048.00 DELIN-3ILLEGAL ACTIVITY - TIMES DRANK ALCOHOLIC BEVERAGES PAST YR (AGE 17 OR UNDER) 1980 R<=17

Theselastthreequestionsareexcludedbecausetheywereonlyaskedofrespondentswhowere17yearsoryoungerin1979(bornbetween1962and1964).Includingthemwouldreducethesampleby70%.

I.B.2.ConstructingtheIndex

TheIllicitIndex

1. Sample:ofthe12,686individualsintheNLSY79survey,1,310havemissingdataononeofthe17delinquencyquestionsthatweincludeinourIndex.Oftheremaining11,376individuals,19havemissingdataononeofthethreepolicequestions.

Thisistabulatedasfollows:

Variable/SelectionCriteria Persons Dropped

Initialnumberofpersons 12,686 0Missingoneofthe17questions 11,376 1,310Missingoneofthe3questions 11,357 19

FinalNumberofPerson-Observations 11,357

2. Weusethe(i)responsestothethreepolicequestions(whichofferzero/oneresponsesintheNLSY79survey)and(ii)the“one/zero”responsestothe17delinquencyquestions,i.e.,weusetheextensiveversionsoftheanswerstothedelinquencyquestions.

3. Foreachrespondent,wesumtheresponsestothetwentyzero/oneresponsesanddivideby20.Wethenstandardizethevaluesbysubtractingthesamplemeananddividingbythestandarddeviation,sothattheIllicitActivityIndexhasameanofzeroandastandarddeviationofone.

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TheIllicitActivityIndex0-6Intensive

1. Weusethefullanswerstothe17delinquencyvariablesconcerningthenumberoftimestherespondentengagedintheactivity.Specifically,therearesevenpossibleanswers:(0)never,(1)once,(2)twice,(3)3-5times,(4)6-10times,(5)11-50times,and(6)morethan50times.

2. FortheIllicitActivityIndex0-6Intensive,weassignthevalues0,1,2,4,8,30,and50tothesevenanswers.

3. Wethen(a)computethestandardizedvalueofeachofthe20questions((value–mean)/standarddeviation))andthen(b)sumthevaluesanddivideby20.

Thetwo,IllicitActivityIndex(standardized)andtheIllicitActivityIndex0-6intensive(standardized),areveryhighlycorrelated(0.91)andthepaper’sresultsholdwhenusingeitherIndex.WeillustratethisrobustnessintheAppendixTables:APPENDIXTABLEVIIA,APPENDIXTABLEVIII,andAPPENDIXTABLEXI.

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TheDistributionofResponsestoQuestionsonDelinquencyandPolice:

Question N Min Median Mean Max NEVER ONCE TWICE TIMES_3_5 TIMES_1_10 TIMES_11_50 TIMES_50P

DelinquencyquestionsusedinconstructingtheIllicitActivityIndexDAMAGED 11734 0 0 0.36 6 0.82 0.09 0.04 0.04 0.01 0.00 0.00FOUGHT 11800 0 0 0.56 6 0.72 0.13 0.06 0.06 0.02 0.01 0.00SHOPLIFTED 11788 0 0 0.53 6 0.74 0.12 0.05 0.05 0.02 0.01 0.00STEEL50M 11788 0 0 0.37 6 0.81 0.09 0.04 0.04 0.01 0.01 0.00STEEL50P 11776 0 0 0.11 6 0.94 0.03 0.01 0.01 0.00 0.00 0.00FORCE 11794 0 0 0.10 6 0.95 0.03 0.01 0.01 0.00 0.00 0.00THREAT 11785 0 0 0.82 6 0.63 0.16 0.08 0.08 0.03 0.02 0.01ATTACK 11792 0 0 0.20 6 0.89 0.06 0.02 0.02 0.01 0.00 0.00MARIJUANA 11722 0 0 1.84 6 0.53 0.09 0.04 0.07 0.05 0.07 0.15DRUGES 11698 0 0 0.60 6 0.81 0.05 0.03 0.04 0.03 0.03 0.02MARIJUANA_SOLD 11693 0 0 0.33 6 0.89 0.03 0.02 0.02 0.02 0.01 0.01DRUGES_SOLD 11717 0 0 0.07 6 0.97 0.01 0.00 0.00 0.00 0.00 0.00CON 11721 0 0 0.48 6 0.78 0.09 0.05 0.05 0.02 0.01 0.01AUTO 11752 0 0 0.14 6 0.92 0.04 0.01 0.01 0.00 0.00 0.00BROKEN 11748 0 0 0.12 6 0.94 0.03 0.01 0.01 0.00 0.00 0.00SOLD 11749 0 0 0.23 6 0.89 0.06 0.02 0.02 0.01 0.00 0.00GAMBELING 11737 0 0 0.06 6 0.98 0.01 0.00 0.00 0.00 0.00 0.00

Policequestions(zero/oneanswers)usedinconstructingtheIllicitActivityIndexSTOPPED_POLICE 12129 0 0 0.19 1 0.81 0.19 0.00 0.00 0.00 0.00 0.00CHARGED 12136 0 0 0.11 1 0.89 0.11 0.00 0.00 0.00 0.00 0.00CONVICTED 12130 0 0 0.06 1 0.94 0.06 0.00 0.00 0.00 0.00 0.00

AVG 0.84 0.07 0.03 0.03 0.01 0.01 0.01

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I.C.NLSY79IncorporatedSelf-employmentCodingDetails

Wefollowthefollowingprocessforcodingincorporatedself-employment.

1.TheNLSY79providesinformationon(a)theclassofworker,includingwhethertherespondent(R)issalariedorself-employed,and(b)whetherR’sbusinessisincorporated.

2.From1994onward,theNLSY79notesthatwheneverR’sjobisthesameasthejobinthelastinterview,classofworkerandincorporationstatusareonlyreportediftheinformationhaschanged.Itiscodedasmissingiftherehasbeennochangesincethelastinterview.

3.Forexample,ifpersonAhasbeencontinuouslyself-employedby"ALConsulting,Inc."forseveralyears,A’s"raw"datamightlooklikethis:

YearCOW(job#1)INCORP(job#1)20004(SE)1(yes)2002-4-42004-4-42006-4-42008-4-42010-4-4Eventhoughjob#1referstothesamejob(ALConsulting,Inc.)ineachoftheseinterviews,COWandINCORParemissingafterthefirstyearbecausetheyarenotre-asked.4. TheNLSY79solvesthisproblemforclassofworker.Theyappropriately“fillin”the

informationonclassofworkerforeachRratherthanleavingdataentriesas“missing,”e.g.,seetheclassofworkervariableforJob#1intheNLSY79Navigator).TheCOWALLvariables(e.g.,R4587905=COWALL-EMP1_1994,whichisCOWforjob#1in1994)havebeen"filledin"tocarrytheoldinformationforward.

5. TheNLSY79,however,didnot“fillin”theincorporationstatus.TheINCORPvariables(e.g.,R4587000=QES1-56E_1994,whichisINCORPforjob#1in1994)havenot.Soifoneispairing(created)COWALLvariableswith(raw)INCORPvariables,the(fake)datawilllooklikethis:

YearCOWALL-EMP1INCORP(job#1)20004(SE)1(yes)20024-420044-420064-420084-420104-4Clearly,therearemanycaseswhereINCORPismissingeventhoughCOWALL=SE.6. Thereisastraightforwardprocedureforaddressingthiscodingissue.IfRisself-employed,

usetheincorporationstatusofthelastinterviewtoappropriately“fillin”missingvalues(i.e.,fillinthe“validskips”).Afterfollowingthisprocedure,incorporatestatushas1.5%missingvaluesbasedonthesampleofindividualsintheTableIsummarystatistics.

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7. WemakeafewadditionaladjustmentsforRswho(a)areself-employedbut(b)havemissingvaluesofincorporatedbusinessstatusafterfollowingtheaboveprocedureinasurveyyear.

7.a.Wefind3person-yearobservationsafter1994whereRisself-employedandRreportshavingthesamejobaslastyearandRwasincorporatedlastyear.WecodeRasincorporated.(SameJobasLastYear)7.b.Wefind8person-yearobservations(after1994)inwhichtheNLSY79indicatesinsurveyt+1that(a)Risincorporatedand(b)hasthesamejobaslastyear,sowecodeRasincorporatedinsurveyt.(SameJobasNextYear)7.c.Wefind7person-yearobservationspriorto1994inwhichaself-employedpersoninperiodtandt-1hasamissingvalueforincorporatedstatusinsurveyt,andwasincorporatedself-employedinsurveyt-1.WecodetheseRsasincorporatedinsurveyt.(Pre-1994:SameJobasLastYear)

7.d.Wefind9person-yearobservationsinwhichaself-employedpersoninsurveytandt+1hasamissingvalueforincorporatedstatusinsurveytbutisincorporatedself-employedinsurveyt+1.WecodetheseRsasincorporatedinsurveyt.(Pre-1994:SameJobasNextYear)

7.e.Afterthis,thereare2additionalperson-yearobservationsinwhichtheincorporatedstatusismissing,butinwhichoneofRsotherjobs,i.e.,Job2–Job5,isincorporated.Wecodethesetwoobservationsasincorporated.AcrossJobCategories)

7.f.Theresultsarerobusttokeepingthese29person-yearobservationsasmissing,asshowninAppendixTables.SeeAPPENDIXTABLEI,APPENDIXTABLEII,APPENDIXTABLEIV,andAPPENDIXTABLEVIIB.

Specifically,fromtheSTATAprogramforthe1,936person-yearobservationscodedasincorporatedself-employed,wetabulatethefollowing:

IncorporatedSource Freq. % Cum. NLSY79rawdata 1,501 77.53 77.53NLSY79post1994procedure 4,06 20.97 98.50SamejobaslastYear 3 0.15 98.66Samejobasnextyear 8 0.41 99.07Pre-1994:samejobaslastyear 7 0.36 99.43Pre-1994:samejobasnextyear 9 0.46 99.90Acrossjobcategories 2 0.10 100.0

I.D.NLSY79:ImputationofMotherandFatherEducation

Ofthe132,681person-yearobservation(10,719individuals)coveredinTableI,125,291(10,093)havemother’seducationand115,216(9,263)havefather’seducation.

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IftheNLSY79doesnotreportdataontheeducationofthemotherorthefather,weusethefollowingtwoimputationprocedures.

1.PartnerImputation.Ifoneparent’seducationismissing,weusetheotherparent’s.

2.MeanImputation.Ifbothparent’seducationaremissing,weusethemeaneducationofparents,differentiatingbyrace(Black,Hispanic,White)andgender.

AsshowninAppendixTables,theresultsarerobusttoexcludingtheseimputedmeasures.

Thefollowingtablesdetaileachimputationprocedure(oneobservationperindividual)forthe10,719individualsinourbasesample(seenextpage).

MotherEducationSource Freq. % Cum. NLSY79rawdata 10,093 94.16 94.16Imputedusingfather’seducation 294 2.74 96.90Imputedusinggroup’smean 332 3.10 100.00

FatherEducationSource Freq. % Cum. NLSY79rawdata 9,263 86.42 86.42Imputedusingfather’seducation 1,124 10.49 10.49Imputedusinggroup’smean 332 3.10 3.10

I.E.NLSY79:FamilyIncomein1979

ForFamilyIncomein1979,weusethenon-zerovaluesofthevariableR0217900,whichistruncatedat$75,000in2010-yearprices.Weusetheearliestnon-missingvaluein1979-1981.In81%ofthecases,thisis1979.In13%,itis1980;andin3.3%,itis1981.

Thus,ofthe132,681person-yearobservationsinTableI,8,676,wehavenon-missingdataforFamilyIncomein1979for97.3%ofthoseobservations

Fortheremaining2.7%(3,598person-yearobservations),weimputefamilyincomebyusingthemeanvalueoffamilyincomebyrace(Black,Hispanic,White).

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I.F.DataProcessingNLSY79:SampleSelectionCriteria

ThetableonthenextpagedetailshowwearriveatthenumberofobservationsineachtableusingNLSY79data.

DataProcessingNLSY79

Variable/SelectionCriteria Year-Person Individuals Dropped

Initialnumberofobservations 317,150 12,686 0Interviewed 243,641 12,686 73,509Agebetween25to55 166,250 12,264 77,391SalariedorSelf-Employed 143,583 11,780 22,667AFQT 137,272 11,133 6,311RotterScore 136,037 11,020 1,235RosenbergScore 132,681 10,719 3,356SchoolYears 132,681 10,719 0

NumberofObservations 132,681 10,719 184,469

TablesandFigures

TablesIandII:Demographics,LaborMarketOutcomesandHomeEnvironment

NumberofObservations 132,681 10,719 184,469

TableIII:SwitchingBetweenUnincorporatedandIncorporatedSelf-Employment

TableIand 132,681 10,719 184,469Self-employed,firstyearinspell 4,118 2,799 128,563Atmostoneswitchwithinself-employmentspell 4,083 2,786 35NumberofObservations 4,083 2,786 0

TableIV:JobTaskRequirementsbyEmploymentType

TableIand 132,681 10,719 184,469Excludingmissingoccupation 131,949 10,674 732NumberofObservationsPanelB.1 131,949 10,674 Lastjobassalariedworker 120,156 10,218 12,5251NumberofObservationsPanelB.2 120,156 10,218

TableVII:SelectionintoEmploymentTypesonCognitive,NoncognitiveandFamilyTraitsTableIand 132,681 10,719 IllicitIndex 125,166 10,055 7,515NumberofObservations 125,166 10,055

1ThisdropisrelativetotheobservationsinTableI.

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TableVIII:DifferencesinJobTaskRequirementsofBusinessesbyIndividualTraitsTableVIIand 125,166 10,055

Whites 69,503 5,981 55,663Males 35,012 2,964 34,491Salariedtwoyearsago 29,754 2,818 5,258Validindustrycodesinyeart 29,412 2,817 342NumberofObservations 29,412 2,817

TablesIX,X,XIandFiguresIandII:Earnings,LevelsandFirstDifferencesTableVIIand 125,166 10,055

Whites 69,503 5,981 55,663Males 35,012 2,964 34,491HourlyEarnings 32,768 2,924 2,244Full-Time;Full-Year 23,657 2,595 9,111NumberofObservations 23,657 2,595 -Firstdifferencesregressions 17,479 2,227 6,178

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II:CPS

II.A.Variables

Earnings: AnnualHoursWorked NumberofhoursworkedduringthepastcalendaryearFull-time,Full-Year Iftherespondent(1)works50ormoreweeksperyearand(2)works

2000ormorehoursperyear,and(3)works40ormorehoursperweek,thenFull-time,Full-yearissetequaltoone,otherwiseitissetequaltozero.

Earnings Wagesplusincomefrombusiness.DeflatedbytheCPIcorrespondingtowhenthoseearningswererealized.Earningsarein2010prices.

Demographics: Age TheageoftherespondentCollegeGraduate(ormore) Graduatedfromcollegeorobtainedanadvanceddegree.Educationalattainment(sixcategories)

Thesixeducationalattainmentcategoriesare:(i)completedlessthan9thgrade,(ii)completedbetween9thand11thgrade,(iii)graduatedfromhighschool,(iv)hadsomecollegeeducation,(v)graduatedfromcollege,and(vi)obtainedanadvanceddegree.

Female Equalsoneiftherespondentreportsbeingfemaleandzerootherwise.Potentialexperience Equalstheageoftherespondentminustheyearsofschoolingminus

seven,or,ifthiscomputationislessthanzero,thenpotentialexperiencesetequaltozero.

White Equalsoneiftherespondentreportsbeingwhiteandzerootherwise.Yearofbirth Thecalendaryearinwhichtherespondentwasborn.YearsofSchooling Totalyearsofeducationalattainment. Employmenttype Salaried TheCPSclassifiesallworkersineachyearaseithersalariedorself-

employed.Salariedequalsoneiftherespondentissalariedandzerootherwise.

Self-employed TheCPSclassifiesallworkersineachyearaseithersalariedorself-employed.Self-employedequalsoneiftherespondentissalariedandzerootherwise.

IncorporatedSelf-employed TheCPSclassifiesallworkersineachyearaseithersalariedorself-employed,andamongtheself-employed,indicateswhetherindividualsareincorporatedorunincorporated.Specifically,individualsareaskedabouttheiremploymentclassfortheirmainjob:“Wereyouemployedbyagovernment,byaprivatecompany,anonprofitorganization,orwereyouself-employed(orworkinginafamilybusiness)?”Thoserespondingthattheyareself-employedarefurtherasked,“Isthisbusinessincorporated?”Incorporatedself-employedequalsoneifthepersonanswersyes,andzerootherwise.

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UnincorporatedSelf-employed TheCPSclassifiesallworkersineachyearaseithersalariedorself-employed,andamongtheself-employed,indicateswhetherindividualsareincorporatedorunincorporated.Specifically,individualsareaskedabouttheiremploymentclassfortheirmainjob:“Wereyouemployedbyagovernment,byaprivatecompany,anonprofitorganization,orwereyouself-employed(orworkinginafamilybusiness)?”Thoserespondingthattheyareself-employedarefurtherasked,“Isthisbusinessincorporated?”Unincorporatedself-employedequalsoneifthepersonanswersnotothisquestionandyestobeingself-employed,andzerootherwise.

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II.B.DataProcessingCPS:SampleSelectionCriteria

ThetableonthenextpagedetailshowwearriveatthenumberofobservationsineachtableusingNLSY79datainthepaper.

DataProcessingCPS,1996-2013

Variable/SelectionCriteria Year-Person Individuals2 Dropped

Initialnumberofobservations 3,384,125 -- 0AdultCivilians 2,551,860 -- 832,265Households 2,551,836 -- 24Withpositivesampleweight 2,550,441 -- 1,395

Agebetween25to55 1,500,103 -- 1,050,338Gender,race,education 1,500,103 -- 0Potentialexperience0-50 1,500,103 -- 0Validindustrycode 1,257,925 -- 242,178Validoccupationcode(<997) 1,257,925 -- 0SchoolYears 1,257,925 -- 0

Excluding: -FarmersandFarmLaborers 1,240,776 -- 17,149-Agriculture 1,226,658 -- 14,118

Salariedorself-employed 1,225,886 -- 772

NumberofObservations 1,225,886 893,780 2,126,200

2ThenumberofindividualsisthebaseforourCPSpaneldataanalyses.

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TablesSelectionCriteria Year-Person Individuals Dropped

TableI:DemographicsandLaborMarketOutcomesbyEmploymentType

NumberofObservations 1,225,886 893,780 2,126,200

TableIV:JobTaskRequirementsbyEmploymentType

TableI 1,225,886 893,780 NumberofObservationspanelA.1 1,225,886 893,780 Panel 513,701 257,017 712,185Salariedworkerlastyear 230,330 230,330 283,371NumberofObservationspanelA.2 230,330 230,330

TableV:SelectionintoUnincorporatedandIncorporatedSelf-EmploymentTableIVpanelA.2 230,330 230,330 NumberofObservations 230,330 230,330

TableVI:TopandBottomIndustriesbyNonroutineJobTaskRequirementsTableI 1,225,886 893,780

NumberofObservations 1,225,886 893,780

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II.C.MatchedSample

Weconstructatwo-yearmatchedpanel.TheCPSinterviewsahouseholdforfourconsecutivemonths.Thenextyear,theCPSreturnstothesamelocation.Inmostcases,thesecondinterviewinvolvesthesamehouseholdasthefirstinterview.

WefollowtheguidelinesinMadrianandLefren(2000)formatchingCPShouseholdsacrosstime.Thisinvolvescheckingtheage,race,gender,education,etc.ofthoseinterviewedanddroppingindividuals(forthematchedpanelsample)wherethesedonotmatchacrosstheCPSinterviews.

Wedonotfinddifferentialselectionintothematched-CPSsampleonceweconditionondemographics(andFTFYwhenconductingtheearningsanalyses),asshowninthetablebelow.

Morespecifically,selectionintothepanelsub-sampleisnotrandom.Whitesandindividualswithlargerearningsaremorelikelytobeobservedtwoconsecutiveyearsthanothers.Theincorporatedandunincorporatedself-employedaremorelikelytobeselectedintothetwo-yearpanel(5.85%and1.7%)thanothers.Yet,conditionalonstandarddemographics,suchasgender,race,educationandpotentialexperiencethesedifferencesdisappear.

Asimple(non-parametric)waytoobservethatdifferentialselectionisnotaproblemwhenusingthematched-CPSsampleistocomparethecross-sectionCPSsamplewiththeMatched-CPSsamplebydemographicgroups.Whenwerestrictthesampletowhites,wefindmuchsmallergapsinkeymeasuresbetweentheMatched-CPSsampleandthecross-sectionsample.Forinstance,thegapinyearsofschoolingcompleted,annualhoursworked,andtheDOTmeasuresarenegligible.ThegapinannualearningsbetweentheMatched-CPSsampleandthecross-sectionsampledropsbyhalfto4%.Furthermore,whenrestrictingthesampletoFTFYwhitemen,thegapinearningsdropsto1%.ThedifferentialselectiononearningsintotheCPS-Matchedsampledropsfromapproximately7%(moreforsalariedthanincorporatedandunincorporatedself-employed)toapproximately2%.

Foracomparisonoftheearningswhenusingthefullandmatchedsamples,seeAppendixTableIXB:CPS:EarningsFull&MatchedSamples,whichshowsthattheresultsareverysimilar.

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DifferencesbetweentheCross-SectionCPSandtheMatched-PanelCPS

DifferencesinAbsoluteTerms(All-Matched)

Differencesin%(All-Matched)/AllSample: All Whites White

MalesWhiteMalesFTFY

WhiteMalesFTFY2K

All Whites White

MalesWhiteMalesFTFY

WhiteMalesFTFY2K

PanelA:AllTypesofWorkersObservations 712185 439193 224825 183224 177032

58.1% 52.2% 51.8% 50.3% 50.3%

Age -1.4 -1.2 -1.1 -1.0 -1.0

-3.5% -2.9% -2.7% -2.4% -2.4%White -0.10 0.00 0.00 0.00 0.00

-14.4% 0.0% 0.0% 0.0% 0.0%

Female 0.00 0.00 0.00 0.00 0.00

-0.1% 0.5% Yearsofschooling -0.2 -0.1 0.0 0.0 0.0

-1.6% -0.4% -0.3% -0.2% -0.2%

Meanearnings -3853 -2217 -2222 -867 -821

-8.1% -4.3% -3.5% -1.2% -1.2%Medianearnings -3930 -2225 -2010 -1158 -1171

-10.9% -5.6% -4.1% -2.2% -2.2%

Annualworkedhours -61 -49 -35 3 3

-3.0% -2.4% -1.6% 0.1% 0.1%Full-TimeFull-Year -0.03 -0.03 -0.03 0.00 0.00

-5.0% -4.4% -3.4% -0.1% 0.0%

NonroutineAnalytical -0.16 -0.06 -0.05 -0.03 -0.03

-4.0% -1.5% -1.2% -0.6% -0.6%NonroutineDCP -0.23 -0.10 -0.09 -0.05 -0.05

-7.8% -3.1% -2.7% -1.5% -1.4%

NonroutineManual 0.04 0.01 0.01 0.01 0.01

3.6% 1.5% 1.0% 0.7% 0.7%

PanelB:SalariedObservations 647422 392704 196143 160633 155473

58.4% 52.3% 52.1% 50.5% 50.5%

Age -1.4 -1.2 -1.2 -0.6 -0.7

-3.6% -3.1% -2.9% -1.4% -1.6%White -0.10 0.00 0.00 0.00 0.00

-14.9% 0.0% 0.0% 0.0% 0.0%

Female 0.00 0.00 0.00 0.00 0.00

-0.6% 0.2% Yearsofschooling -0.2 -0.1 0.0 0.0 -0.1

-1.7% -0.4% -0.3% -0.3% -0.4%

Meanearnings -3802 -2236 -2321 126 -124

-8.2% -4.4% -3.8% 0.2% -0.2%

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Medianearnings -3770 -2067 -2187 0 -405

-10.4% -5.2% -4.5% 0.0% -0.8%Annualworkedhours -59 -48 -35 -1 -4

-3.0% -2.4% -1.6% 0.0% -0.2%

Full-TimeFull-Year -0.04 -0.03 -0.03 0.00 0.00

-5.1% -4.5% -3.6% 0.0% 0.0%NonroutineAnalytical -0.16 -0.06 -0.05 -0.02 -0.01

-4.0% -1.5% -1.2% -0.5% -0.3%

NonroutineDCP -0.23 -0.10 -0.09 -0.02 0.05

-8.0% -3.2% -2.8% -0.6% 1.3%NonroutineManual 0.04 0.01 0.01 0.02 0.01

3.6% 1.5% 0.8% 1.5% 0.5%

PanelC:Self-EmployedObservations 64763 46489 28682 22591 21559

55.2% 50.8% 49.8% 49.0% 49.0%

Age -0.9 -0.7 -0.6 -0.6 -0.6

-2.0% -1.6% -1.4% -1.3% -1.3%White -0.08 0.00 0.00 0.00 0.00

-10.2% 0.0% 0.0% 0.0% 0.0%

Female 0.01 0.01 0.00 0.00 0.00

3.2% 3.1% Yearsofschooling -0.2 -0.1 -0.1 0.0 0.0

-1.4% -0.4% -0.4% -0.3% -0.3%

Meanearnings -3553 -1735 -978 126 150

-6.1% -2.8% -1.3% 0.1% 0.2%Medianearnings -2749 -1627 -1239 0 -821

-8.0% -4.5% -2.6% 0.0% -1.5%

Annualworkedhours -64 -51 -31 -1 -1


-4.3% -3.6% -2.0% 0.0% 0.0%


-3.1% -1.3% -0.8% -0.4% -0.4%NonroutineDCP -0.17 -0.08 -0.06 -0.02 -0.02

-4.5% -2.1% -1.3% -0.5% -0.4%


3.5% 1.4% 1.9% 1.7% 1.7%

PanelD:Self-EmployedUnincorporatedObservations 42785 29506 16440 11804 11101

56.7% 51.7% 50.3% 49.3% 49.4%

Age -1.0 -0.8 -0.7 -0.7 -0.7

-2.4% -1.9% -1.7% -1.6% -1.5%White -0.09 0.00 0.00 0.00 0.00

-12.2% 0.0% 0.0% 0.0% 0.0%

Female 0.01 0.01 0.00 0.00 0.00

2.2% 3.0% Yearsofschooling -0.2 -0.1 -0.1 -0.1 -0.1

-1.8% -0.6% -0.6% -0.4% -0.4%

Meanearnings -3150 -1905 -1375 -210 -124

-7.7% -4.4% -2.5% -0.3% -0.2%Medianearnings -2415 -1632 -1026 -102 -405

-9.8% -6.3% -3.0% -0.3% -1.0%

Annualworkedhours -66 -57 -38 -2 -4

-3.4% -3.0% -1.8% -0.1% -0.2%Full-TimeFull-Year -0.03 -0.02 -0.02 0.00 0.00

-4.4% -4.0% -2.2% 0.3% 0.0%

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-3.7% -1.7% -1.0% -0.5% -0.3%NonroutineDCP -0.13 -0.05 -0.02 0.04 0.05

-4.1% -1.6% -0.5% 1.1% 1.3%


2.7% 0.6% 1.2% 0.6% 0.5%

PanelE:Self-EmployedIncorporatedObservations 21978 16983 12242 10787 10458

52.6% 49.4% 49.1% 48.6% 48.6%

Age -0.6 -0.5 -0.4 -0.4 -0.4

-1.4% -1.1% -1.0% -1.0% -1.0%White -0.06 0.00 0.00 0.00 0.00

-6.7% 0.0% 0.0% 0.0% 0.0%

Female 0.01 0.01 0.00 0.00 0.00

3.1% 2.1% Yearsofschooling -0.1 0.0 0.0 0.0 0.0

-0.4% -0.1% -0.1% -0.1% -0.1%

Meanearnings -1394 -147 467 963 1003

-1.6% -0.2% 0.4% 0.9% 0.9%Medianearnings -1390 -609 -592 -310 -728

-2.5% -1.1% -0.9% -0.4% -1.0%

Annualworkedhours -37 -30 -15 2 3


-2.4% -2.3% -1.4% -0.2% 0.0%


-1.1% -0.4% -0.2% -0.2% -0.2%NonroutineDCP -0.13 -0.09 -0.08 -0.07 -0.06

-2.5% -1.7% -1.4% -1.2% -1.2%


3.3% 2.1% 2.4% 3.0% 2.9%

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III:JobTaskRequirements

III.A.Basics

TheDOTwasfirstconstructedin1939tohelpemploymentofficesmatchjobseekerswithjobopenings.Itprovidesinformationontheskillsdemandedofover12,000occupations.TheDOTwasupdatedin1949,1964,1977,and1991,andreplacedbytheO*NETin1998.

Giventhetimingofourstudy,weusethe1991DOT,andconfirmtheresultswiththe1977DOT.

TheDOTaggregatesinformationintofiveskillcategories.Weusetheseaggregatedjobtaskrequirementsofindividualoccupations.TolinktheDOTmeasurestotheCPSandNLSY79data,wefollowAutor,Levy,andMurnane(2003)andusethecodesprovidedonDavidAutor’swebsite. (Reference: Autor,DavidH.,FrankLevy,andRichardJ.Murnane.2003.“Theskillcontentofrecenttechnologicalchange:Anempiricalinvestigation.”QuarterlyJournalofEconomics118(4):1279-1333.)WethenusetheunifiedIPUMSoccupationcodestohaveconsistentcodingofoccupationsofindividualsovertime.ThisgivesDOTmeasuresforeachperson-year.

III.B.Industry

Tocalculatethejobtaskrequirementsbyindustry,weusetheweightedaveragejobtaskrequirementsofworkersintheindustry.Weweightbythenumberofhoursworked(dividedby2000)ofeachworker.

III.C.Variables

NonroutineAnalytical Thedegreetowhichthetaskdemandsanalyticalflexibility,creativity,reasoning,andgeneralizedproblem-solving.

NonroutineDirection,Control,Planning

Thedegreetowhichthetaskdemandscomplexinterpersonalcommunicationssuchaspersuading,selling,andmanagingothers.

NonroutineManual Thedegreetowhichthetaskdemandseye,hand,andfootcoordination.RoutineAnalytical Thedegreetowhichthetaskrequiresthepreciseattainmentofset

standards,RoutineManual Thedegreetowhichthetaskrequiresrepetitivemanualtasks