[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/lap/wpaper/016.html
   My bibliography  Save this paper

Individual Heterogeneity in the Returns to Schooling: Instrumental Variables Quantile Regression using Twins Data

Author

Listed:
  • Omar Arias
  • Kevin F. Hallock
  • Walter Sosa Escudero
Abstract
Considerable effort has been exercised recently in estimating mean returns to education while carefully considering biases arising from unmeasured ability and measurement error. Some of this work has also attempted to determine whether there are variations from the “mean” return to education across the population with mixed results. In this paper, we use recent extensions of instrumental variables techniques to quantile regression on a sample of twins to estimate an entire family of returns to education at different quantiles of the conditional distribution of wages while addressing simultaneity and measurement error biases. We test whether there is individual heterogeneity in returns to education against the alternative that there is a constant return for all workers. Our estimated model provides evidence of two sources of heterogeneity in returns to schooling. First, there is evidence of a differential effect by which more able individuals become better educated because they face lower marginal costs of schooling. Second, once this endogeneity bias is accounted for, our results provide evidence of the existence of actual heterogeneity in market returns to education consistent with a non-trivial interaction between schooling and unobserved abilities in the generation of earnings. The evidence suggests that higher ability individuals (those further to the right in the conditional distribution of wages) have higher returns to schooling but that returns vary significantly only along the lower quantiles to middle quantiles. In our final approach, the resulting estimated returns are never lower than 9 percent and can be as high as 13 percent at the top of the conditional distribution of wages, thus providing rather tight bounds on the true return to schooling. Our findings have meaningful implications for the design of educational policies.

Suggested Citation

  • Omar Arias & Kevin F. Hallock & Walter Sosa Escudero, 1999. "Individual Heterogeneity in the Returns to Schooling: Instrumental Variables Quantile Regression using Twins Data," Department of Economics, Working Papers 016, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    • Handle: RePEc:lap:wpaper:016
    as

    Download full text from publisher

    File URL: https://www.depeco.econo.unlp.edu.ar/wp/wp-content/uploads/2017/05/doc16.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joshua D. Angrist & Alan B. Krueger, 1991. "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery," Working Papers 670, Princeton University, Department of Economics, Industrial Relations Section..
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics 435, Department of Economics.
    4. John Dinardo & Thomas Lemieux, 1997. "Diverging Male Wage Inequality in the United States and Ganada, 1981–1988: Do Institutions Explain the Difference?," ILR Review, Cornell University, ILR School, vol. 50(4), pages 629-651, July.
    5. Mwabu, Germano & Schultz, T Paul, 1996. "Education Returns across Quantiles of the Wage Function: Alternative Explanations for Returns to Education by Race in South Africa," American Economic Review, American Economic Association, vol. 86(2), pages 335-339, May.
    6. Bound, John & Solon, Gary, 1999. "Double trouble: on the value of twins-based estimation of the return to schooling," Economics of Education Review, Elsevier, vol. 18(2), pages 169-182, April.
    7. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    8. repec:fth:prinin:335 is not listed on IDEAS
    9. Kenneth Y. Chay & David S. Lee, 1996. "Changes in Relative Wages in the 1980s: Returns to Observed and Unobserved Skills and Black-White Wage Differentials," Working Papers 751, Princeton University, Department of Economics, Industrial Relations Section..
    10. Jin Huem Park, 1994. "Returns to Schooling: A Peculiar Deviation from Linearity," Working Papers 714, Princeton University, Department of Economics, Industrial Relations Section..
    11. Jin Huem Park, 1994. "Returns to Schooling: A Peculiar Deviation from Linearity," Working Papers 714, Princeton University, Department of Economics, Industrial Relations Section..
    12. repec:pri:indrel:dsp01k06987516 is not listed on IDEAS
    13. Cecilia E. Rouse, 1997. "Further Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 767, Princeton University, Department of Economics, Industrial Relations Section..
    14. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, vol. 62(2), pages 405-458, March.
    15. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
    16. Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-323, July.
    17. Powell, James L, 1983. "The Asymptotic Normality of Two-Stage Least Absolute Deviations Estimators," Econometrica, Econometric Society, vol. 51(5), pages 1569-1575, September.
    18. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 253-284.
    19. Kristin F. Butcher & Anne Case, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 531-563.
    20. Buchinsky, Moshe, 1995. "Estimating the asymptotic covariance matrix for quantile regression models a Monte Carlo study," Journal of Econometrics, Elsevier, vol. 68(2), pages 303-338, August.
    21. Ashenfelter, Orley & Krueger, Alan B, 1994. "Estimates of the Economic Returns to Schooling from a New Sample of Twins," American Economic Review, American Economic Association, vol. 84(5), pages 1157-1173, December.
    22. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    23. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    24. Kenneth Chay & David S. Lee, 1996. "Changes in Relative Wages in the 1980s: Returns to Observed and Unobserved Skills and Black-White Wage Differentials," Working Papers 751, Princeton University, Department of Economics, Industrial Relations Section..
    25. repec:fth:prinin:388 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Colm Harmon & Hessel Oosterbeek, 2000. "The Returns to Education: A Review of Evidence, Issues and Deficiencies in the Literature," CEE Discussion Papers 0005, Centre for the Economics of Education, LSE.
    2. Balestra, Simone & Backes-Gellner, Uschi, 2017. "Heterogeneous returns to education over the wage distribution: Who profits the most?," Labour Economics, Elsevier, vol. 44(C), pages 89-105.
    3. Alan B. Krueger & Mikael Lindahl, 1998. "Education for Growth in Sweden and the World," Working Papers 790, Princeton University, Department of Economics, Industrial Relations Section..
    4. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    5. Colm Harmon & Hessel Oosterbeek & Ian Walker, 2003. "The Returns to Education: Microeconomics," Journal of Economic Surveys, Wiley Blackwell, vol. 17(2), pages 115-156, April.
    6. repec:ucn:wpaper:10197/1099 is not listed on IDEAS
    7. Pamela Giustinelli, 2004. "Quantile Regression Evidence on Italian Education Returns," Rivista di Politica Economica, SIPI Spa, vol. 94(6), pages 49-100, November-.
    8. Ashenfelter, Orley & Harmon, Colm & Oosterbeek, Hessel, 1999. "A review of estimates of the schooling/earnings relationship, with tests for publication bias," Labour Economics, Elsevier, vol. 6(4), pages 453-470, November.
    9. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    10. Orley Ashenfelter & Colm Harmon & Hessel Oosterbeek, 1999. "A Review of Estimates of the Schooling/Earnings Relationship, with Tests for Publication Bias," Working Papers 804, Princeton University, Department of Economics, Industrial Relations Section..
    11. Justin L. Tobias & Mingliang Li, 2004. "Returns to Schooling and Bayesian Model Averaging: A Union of Two Literatures," Journal of Economic Surveys, Wiley Blackwell, vol. 18(2), pages 153-180, April.
    12. Maluccio, John A., 1998. "Endogeneity of schooling in the wage function," FCND discussion papers 54, International Food Policy Research Institute (IFPRI).
    13. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 253-284.
    14. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
    15. Thomas J. Kane & Cecilia E. Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers 798, Princeton University, Department of Economics, Industrial Relations Section..
    16. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
    17. Ge, Suqin, 2013. "Estimating the returns to schooling: Implications from a dynamic discrete choice model," Labour Economics, Elsevier, vol. 20(C), pages 92-105.
    18. Gunnar Isacsson, 2004. "Estimating the economic return to educational levels using data on twins," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 99-119.
    19. Park, Seonyoung, 2011. "Returning to school for higher returns," Economics of Education Review, Elsevier, vol. 30(6), pages 1215-1228.
    20. Makiko Nakamuro & Tomohiko Inui & Shinji Yamagata, 2017. "Returns to Education Using a Sample of Twins: Evidence from Japan-super-," Asian Economic Journal, East Asian Economic Association, vol. 31(1), pages 61-81, March.
    21. NAKAMURO Makiko & INUI Tomohiko, 2012. "Estimating the Returns to Education Using a Sample of Twins - The case of Japan -," Discussion papers 12076, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • I2 - Health, Education, and Welfare - - Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lap:wpaper:016. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Diego Fernandez Felices (email available below). General contact details of provider: https://edirc.repec.org/data/funlpar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.