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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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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.401714.de/dp1213.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1213.

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Length: 46 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwwpp:dp1213

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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. Gang, Ira N. & Zimmermann, Klaus F., 1999. "Is Child like Parent? Educational Attainment and Ethnic Origin," IZA Discussion Papers 57, Institute for the Study of Labor (IZA).
  2. Klein, Roger & Vella, Francis, 2010. "Estimating a class of triangular simultaneous equations models without exclusion restrictions," Journal of Econometrics, Elsevier, vol. 154(2), pages 154-164, February.
  3. Paul J. Devereux & Robert A. Hart, 2009. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Working Papers 200940, Geary Institute, University College Dublin.
  4. Thomas Siedler, 2010. "Schooling and Citizenship in a Young Democracy: Evidence from Postwar Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 315-338, 06.
  5. Jorn-Steffen Pischke & Till von Wachter, 2008. "Zero returns to compulsory schooling in Germany: evidence and interpretation," LSE Research Online Documents on Economics 19509, London School of Economics and Political Science, LSE Library.
  6. Thomas J. Kane & Cecilia Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers 798, Princeton University, Department of Economics, Industrial Relations Section..
  7. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers ECO2001/09, European University Institute.
  8. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics 435, Department of Economics.
  9. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
  10. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
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Cited by:
  1. Simone Balestra & Uschi Backes-Gellner, 2013. "Heterogeneous Returns to Education Over the Wage Distribution: Who Profits the Most?," Economics of Education Working Paper Series 0091, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany – Heterogeneous Eff ects and Skill Formation," Ruhr Economic Papers 0446, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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