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Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data

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Author Info

  • Omar Arias

    ()
    (Inter-American Development Bank, 1300 New York Ave., NW, STOP E-0421, Washington, DC 20577)

  • Walter Sosa-Escudero

    ()
    (Department of Economics, Universidad Nacional de la Plata, La Plata, Argentina)

  • Kevin F. Hallock

    ()
    (Department of Economics, University of Illinois, 1206 South 6th Street, Champaign, IL 61820)

Abstract

Considerable effort has been exercised in estimating mean returns to education while carefully considering biases arising from unmeasured ability and measurement error. Recent work has investigated whether there are variations from the "mean" return to education across the population with mixed results. We use an instrumental variables estimator for 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 and find that: more able individuals obtain more schooling perhaps due to lower marginal costs and/or higher marginal benefits of schooling and that higher ability individuals (those further to the right in the conditional distribution of wages) have higher returns to schooling consistent with a non-trivial interaction between schooling and unobserved abilities in the generation of earnings. The 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 but they vary significantly only along the lower to middle quantiles. Our findings may have meaningful implications for the design of educational policies.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 26 (2001)
Issue (Month): 1 ()
Pages: 7-40

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Handle: RePEc:spr:empeco:v:26:y:2001:i:1:p:7-40

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Related research

Keywords: Returns to Education · Human Capital · Heterogeneity · Quantile Treatment Effects · Instrumental Variables.;

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  1. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche 9406, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. 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.
  3. Butcher, Kristin F & Case, Anne, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 531-63, August.
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