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Estimating the Veteran Effect with Endogenous Schooling When Instruments Are Potentially Weak

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  • Chaudhuri, Saraswata

    ()
    (University of North Carolina, Chapel Hill)

  • Rose, Elaina

    ()
    (University of Washington)

Abstract

Instrumental variables estimates of the effect of military service on subsequent civilian earnings either omit schooling or treat it as exogenous. In a more general setting that also allows for the treatment of schooling as endogenous, we estimate the veteran effect for men who were born between 1944 and 1952 and thus reached draft age during the Vietnam era. We apply a variety of state-of-the-art econometric techniques to gauge the sensitivity of the estimates to the treatment of schooling. We find a significant veteran penalty.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4203.

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Length: 30 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4203

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Keywords: veteran effect; weak instruments;

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References

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  1. Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 979-1014, November.
  2. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 557-586, May.
  3. Kleibergen, Frank & Mavroeidis, Sophocles, 2009. "Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 27(3), pages 293-311.
  4. Alan B. Krueger & Joshua D. Angrist, 1989. "Why do World War II Veterans Earn More Than Nonveterans?," NBER Working Papers 2991, National Bureau of Economic Research, Inc.
  5. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  6. Saul Schwartz, 1986. "The relative earnings of Vietnam and Korean-era veterans," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(4), pages 564-572, July.
  7. Frank Kleibergen, 2001. "Testing Parameters in GMM without Assuming that they are identified," Tinbergen Institute Discussion Papers 01-067/4, Tinbergen Institute.
  8. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
  9. Joshua D. Angrist & Stacey H. Chen, 2009. "Long-Term Economic Consequences of Vietnam-Era Conscription: Schooling, Experience and Earnings," Royal Holloway, University of London: Discussion Papers in Economics, Department of Economics, Royal Holloway University of London 09/02, Department of Economics, Royal Holloway University of London.
  10. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
  11. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1055-1096, September.
  12. Joshua Angrist, 1989. "Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 631, Princeton University, Department of Economics, Industrial Relations Section..
  13. Sherwin Rosen & Paul Taubman, 1982. "Changes in Life-Cycle Earnings: What Do Social Security Data Show?," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 321-338.
  14. Matthew S. Goldberg & John T. Warner, 1987. "Military Experience, Civilian Experience, and the Earnings of Veterans," Journal of Human Resources, University of Wisconsin Press, vol. 22(1), pages 61-81.
  15. 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.
  16. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 474-75, June.
  17. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521844413.
  18. De Tray, Dennis, 1982. "Veteran Status as a Screening Device," American Economic Review, American Economic Association, American Economic Association, vol. 72(1), pages 133-42, March.
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Citations

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Cited by:
  1. Doko Tchatoka, Firmin Sabro, 2012. "Specification Tests with Weak and Invalid Instruments," MPRA Paper 40185, University Library of Munich, Germany.
  2. Christopher J. Bennett & Ricardas Zitikis, 2011. "Examining the Distributional Effects of Military Service on Earnings: A Test of Initial Dominance," Vanderbilt University Department of Economics Working Papers 1111, Vanderbilt University Department of Economics.
  3. Doko Tchatoka, Firmin, 2012. "On the validity of Durbin-Wu-Hausman tests for assessing partial exogeneity hypotheses with possibly weak instruments," Working Papers, University of Tasmania, School of Economics and Finance 15061, University of Tasmania, School of Economics and Finance, revised 06 Jul 2012.

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