Advanced Search
MyIDEAS: Login to save this article or follow this journal

The Causal Effect of Education on Wages Revisited

Contents:

Author Info

  • Matt Dickson

Abstract

This paper estimates the return to education using two alternative instrumental variable estimators: one exploits variation in schooling associated with early smoking behaviour, the other uses the raising of the minimum school leaving age. Each instrument estimates a ‘local average treatment effect’ and my motivation is to analyse the extent to which these differ and which is more appropriate for drawing conclusions about the return to education in Britain. I implement each instrument on the same data from the British Household Panel Survey, and use the over-identification to test the validity of my instruments. I find that the instrument constructed using early smoking behaviour is valid as well as being strong, and argue that it provides a better estimate of the average effect of additional education, akin to ordinary least squares but corrected for endogeneity. I also exploit the dual sources of exogenous variation in schooling to derive a further IV estimate of the return to schooling. I find the OLS estimate to be considerably downward biased (around 4.6%) compared with the IV estimates of 12.9% (early smoking), 10.2% (RoSLA) and 12.5% (both instruments).

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1111/j.1468-0084.2012.00708.x
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 75 (2013)
Issue (Month): 4 (08)
Pages: 477-498

as in new window
Handle: RePEc:bla:obuest:v:75:y:2013:i:4:p:477-498

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0305-9049
More information through EDIRC

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0305-9049

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  2. John Bound & David A. Jaeger, 1996. "On the Validity of Season of Birth as an Instrument in Wage Equations: A Comment on Angrist & Krueger's "Does Compulsory School Attendance Affect Scho," NBER Working Papers 5835, National Bureau of Economic Research, Inc.
  3. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  4. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 653, Princeton University, Department of Economics, Industrial Relations Section..
  5. Arnaud Chevalier & Colm Harmon & Ian Walker & Yu Zhu, 2004. "Does Education Raise Productivity, or Just Reflect it?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(499), pages F499-F517, November.
  6. Carneiro, Pedro & Heckman, James J., 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," IZA Discussion Papers 518, Institute for the Study of Labor (IZA).
  7. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 710, Princeton University, Department of Economics, Industrial Relations Section..
  8. Lang, Kevin, 1993. "Ability Bias, Discount Rate Bias and the Return to Education," MPRA Paper 24651, University Library of Munich, Germany.
  9. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 0706, Centre for Economic Reform and Transformation, Heriot Watt University.
  10. Lorraine Dearden & Emla Fitzsimons & Gill Wyness, 2011. "The Impact of Tuition Fees and Support on University Participation in the UK," CEE Discussion Papers, Centre for the Economics of Education, LSE 0126, Centre for the Economics of Education, LSE.
  11. Henry S. Farber & Jeffrey R. Kling & Alan Krueger, 1999. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 794, Princeton University, Department of Economics, Industrial Relations Section..
  12. Haroon Chowdry & Claire Crawford & Lorraine Dearden & Alissa Goodman & Anna Vignoles, 2010. "Widening participation in higher education: analysis using linked administrative data," IFS Working Papers, Institute for Fiscal Studies W10/04, Institute for Fiscal Studies.
  13. Lalith Munasinghe & Nachum Sicherman, 2000. "Why Do Dancers Smoke? Time Preference, Occupational Choice, and Wage Growth," NBER Working Papers 7542, National Bureau of Economic Research, Inc.
  14. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers, Institute for Fiscal Studies W95/12, Institute for Fiscal Studies.
  15. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, Econometric Society, vol. 45(1), pages 1-22, January.
  16. Phillip Farrell & Victor R. Fuchs, 1981. "Schooling and Health: The Cigarette Connection," NBER Working Papers 0768, National Bureau of Economic Research, Inc.
  17. Philip Oreopoulos, 2006. "Estimating Average and Local Average Treatment Effects of Education when Compulsory Schooling Laws Really Matter," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 152-175, March.
  18. Harmon, Colm & Walker, Ian, 2000. "The Returns to the Quantity and Quality of Education: Evidence for Men in England and Wales," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 67(265), pages 19-35, February.
  19. Uusitalo, Roope, 1999. "Return to education in Finland," Labour Economics, Elsevier, Elsevier, vol. 6(4), pages 569-580, November.
  20. Park, Jin Heum, 1999. "Estimation of sheepskin effects using the old and the new measures of educational attainment in the Current Population Survey," Economics Letters, Elsevier, Elsevier, vol. 62(2), pages 237-240, February.
  21. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  22. Harmon, Colm & Walker, Ian, 1999. "The marginal and average returns to schooling in the UK," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 879-887, April.
  23. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(4), pages 111-132, Fall.
  24. John Bound & David A. Jaeger & Regina Baker, 1993. "The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables," NBER Technical Working Papers 0137, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Arabsheibani, Reza & Staneva, Anita V., 2012. "Returns to Education in Russia: Where There Is Risky Sexual Behaviour There Is Also an Instrument," IZA Discussion Papers 6726, Institute for the Study of Labor (IZA).
  2. Paul Gregg & Lindsey Macmillan, 2009. "Family Income and Education in the Next Generation: Exploring income gradients in education for current cohorts of youth," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 09/223, Department of Economics, University of Bristol, UK.
  3. Simone Balestra & Uschi Backes-Gellner, 2013. "Heterogeneous Returns to Education Over Wage Distribution: Who Pro ts the Most?," Economics of Education Working Paper Series, University of Zurich, Institute for Strategy and Business Economics (ISU) 0091, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Dec 2013.
  4. Devereux, Paul J. & Fan, Wen, 2011. "Earnings returns to the British education expansion," Economics of Education Review, Elsevier, Elsevier, vol. 30(6), pages 1153-1166.
  5. B. Ben-Halima & Nathalie Chusseau & Joel Hellier, 2013. "Skill premia and intergenerational education mobility: The French case," Working Papers 313, ECINEQ, Society for the Study of Economic Inequality.
  6. Jesus Crespo Cuaresma & Anna Raggl, 2014. "The dynamics of returns to education in Uganda: National and subnational trends," Department of Economics Working Papers wuwp169, Vienna University of Economics, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:75:y:2013:i:4:p:477-498. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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