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Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity

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  • Nils Saniter

Abstract

In this paper I investigate the causal returns to education for different educational groups in Germany by employing a new method by Klein and Vella (2010) that bases identification on the presence of conditional heteroskedasticity. Compared to IV methods, key advantages of this approach are unbiased estimates in the absence of instruments and parameter interpretation that is not bounded to local average treatment effects. Using data from the German Socio-Economic Panel Study (SOEP) I find that the causal return to education is 8.5% for the entire sample, 2.3% for graduates from the basic school track and 11% for graduates from a higher school track. Across these groups the endogeneity bias in simple OLS regressions varies significantly. This confirms recent evidence in the literature on Germany. Various robustness checks support the findings.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 458.

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Length: 46 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp458

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Keywords: Return to education; wage equation; control function approach; second moment exclusion restriction;

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References

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  1. Klein, Roger & Vella, Francis, 2006. "Estimating a Class of Triangular Simultaneous Equations Models Without Exclusion Restrictions," IZA Discussion Papers 2378, Institute for the Study of Labor (IZA).
  2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number minc74-1.
  3. Ira N. Gang & Klaus F. Zimmermann, 2000. "Is Child like Parent? Educational Attainment and Ethnic Origin," Journal of Human Resources, University of Wisconsin Press, vol. 35(3), pages 550-569.
  4. Paul J Devereux & Robert A Hart, 2009. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Working Papers, School Of Economics, University College Dublin 200924, School Of Economics, University College Dublin.
  5. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, National Bureau of Economic Research, Inc, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  6. 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.
  7. Thomas Siedler, 2010. "Schooling and Citizenship in a Young Democracy: Evidence from Postwar Germany," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 112(2), pages 315-338, 06.
  8. Jorn-Steffen Pischke & Till von Wachter, 2008. "Zero returns to compulsory schooling in Germany: evidence and interpretation," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19509, London School of Economics and Political Science, LSE Library.
  9. Thomas J. Kane & Cecilia Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 798, Princeton University, Department of Economics, Industrial Relations Section..
  10. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics, Department of Economics 435, Department of Economics.
  11. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers, European University Institute ECO2001/09, European University Institute.
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Cited by:
  1. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," SOEPpapers on Multidisciplinary Panel Data Research 598, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. 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.

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