Lang, Kevin (1993): Ability Bias, Discount Rate Bias and the Return to Education.
Download (946kB) | Preview
I reconsider various methods for correcting for bias in estimates of the returns to schooling. I argue that the literature on ability bias has ignored complications implicit in theoretical formulations of the choice of human capital. In particular, such models imply that adding ability to the wage equation may not be informative about the importance of bias and that variables correlated with the discount rate will generally not be suitable instruments for education. Indeed discount rate variation may generate downward bias. Estimation of a structural wage/schooling model suggests that OLS estimates of the return to schooling are biased downwards.
|Item Type:||MPRA Paper|
|Original Title:||Ability Bias, Discount Rate Bias and the Return to Education|
|Keywords:||instrumental variables; returns to schooling; discount rates; ability bias|
|Subjects:||C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General
|Depositing User:||Kevin Lang|
|Date Deposited:||29. Aug 2010 09:17|
|Last Modified:||11. Feb 2013 17:01|
Angrist, Joshua D. and Alan B. Krueger, "Does Compulsory School Attendance Affect Schooling and Earnings?" Quarterly Journal of Economics, 106 (November 1991): 979-1014.
Angrist, Joshua D. and Alan B. Krueger, "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery, Princeton, unpublished, 1991.
Ashenfelter, Orley and Alan Krueger, "Estimates of the Return to Schooling from a New Sample of Twins," Industrial Relations Section Princeton University Working Paper No. 304, June 1992.
Becker, Gary S., Human Capital, 2nd ed., Chicago: Chicago University Press, 1975.
Behrman, Jere R., Zdenek Hrubec, Paul Taubman and Terence Wales, "Socioeconomic Success: A Study of the Effects of Genetic Endowments, Family Environment, and Schooling, Amsterdam: North-Holland, 1980.
Boissiere, M, J.B. Knight and R.H. Sabot, "Earnings, Schooling, Ability, and Cognitive Skills," American Economic Review, 75 (Dec. 1985): 1016-29.
Chamberlain, Gary, "Omitted Variable Bias in Panel Data: Estimating the Returns to Schooling," Annales de l'insee, 30-31 (April-Sept, 1978): 49-82.
Chamberlain, Gary and Zvi Griliches, "More on Brothers," in Paul Taubman, ed., Kinometrics: The Determinants of Success Within and Between Families, Amsterdam: North-Holland, 1977.
Conlisk, John, "A Bit of Evidence on the Income-Education-Ability Interrelation," Journal of Human Resources, 6 (Summer 1971): 358-62.
Griliches, Zvi, "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, 45 (Janaury 1977): 1-22.
Griliches, Zvi, "Sibling Models and Data in Economics - The Beginnings of a Survey," Journal of Political Economy, 87 (October 1979): S37-64.
Griliches, Zvi, Bronwyn H. Hall, and Jerry A. Hausman, "Missing Data and Self-Selection in Large Panels," Annales de l'insee, 30-31 (April-Sept. 1978): 137-76.
Griliches, Zvi and William M. Mason, "Education, Income and Ability," Journal of Political Economy," 80 (May/June 1972): S74-S103.
Hause, John, "Earnings Profile: Ability and Schooling," Journal of Political Economy, 80 (May/June 1972) S108-38.
Hausman, Jerry A. and William E. Taylor, "Panel Data and Unobservable Individual Effects," Econometrica, 49 (Nov. 1981): 1377-98.
Krueger, Alan, "How Computers Have Changed the Wage Structure: Evidence from Microdata, 1984-89," Quarterly Journal of Economics, 108 (February 1993): 33-60.
Lang, Kevin and Paul A. Ruud, "Returns to Schooling, Implicit Discount Rates and Black-White Wage Differentials," Review of Economics and Statistics, 68 (February 1986): 41-47.
Rosen, Sherwin, "Hedonic Prices and Implict Markets: Product Differentiation in Pure Competition," Journal of Political Economy 82 (January/February 1974): 34-55.
Rosen, Sherwin, "The Theory of Equalizing Differences," in Orley Ashenfelter and Richard Layard, eds., Handbook of Labor Economics, Amsterdam: North-Holland, 1976, 641-92.
Ruud, Paul A., "Misspecification in Limited Dependent Variable Models," unpublished doctoral dissertation, Massachusetts Institute of Technology, 1981.
Taubman, Paul, "Determinants of Earnings - Genetics, Family and Other Environments - A Study of Male Twins, American Economic Review, 66 (December 1976): 858-70.
Taubman, Paul, ed., Kinometrics, Amsterdam: North-Holland, 1977.
Willis, Robert J. and Sherwin Rosen, "Education and Self-Selection," Journal of Political Economy, 87 (October 1979): S7-S36.