In Simple Words
Estimating a worker's professional skill based on age minus years of schooling is like calculating a car's engine health solely by the year it was manufactured rather than checking its odometer; in developing economies with high unemployment, age heavily overestimates actual time spent gaining on-the-job skills.
Young male job applicants in Malawi
- Without short work experience
- Reference wage outcome
- With short work experience
- About USD 3.83 more per day
Eight-month instrumental-variable estimate from randomized fallback-job chances. It does not isolate measurement error as the reason earlier estimates were smaller.
See source →Research question
Labor market evaluations in developing countries often rely on potential experience proxies (age minus schooling years minus six) rather than actual work history, introducing severe measurement bias due to frequent schooling disruptions and prolonged unemployment spells.
Participants
N = 227 urban Malawian male job seekers with secondary education in Lilongwe, Malawi.
Study Design
Empirical comparative analysis contrasting instrumental variable estimates of actual work experience returns against standard nonexperimental Mincerian regressions using potential experience.
Results
Nonexperimental wage returns relying on potential experience proxies require approximately 10 years of estimated potential experience in Malawi to match the wage gain produced by 5 days of actual measured work experience, demonstrating that potential experience drastically underestimates true per-day returns while overstating accumulated work history.
Takeaway
Collect direct, event-history measurements of actual days worked rather than using potential experience formulas when evaluating human capital returns in developing economies.