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Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings

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Author Info

  • Bhuller, Manudeep

    ()
    (Statistics Norway)

  • Mogstad, Magne

    ()
    (University of Chicago)

  • Salvanes, Kjell G.

    ()
    (Norwegian School of Economics)

Abstract

This paper uses a unique data set with nearly career-long earnings histories to provide evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5788.

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Length: 40 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5788

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Keywords: returns to schooling; life-cycle bias; lifetime earnings; current earnings; errors-in-variables model;

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References

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  19. Jan Leonard Stuhler, 2010. "Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature," SOEPpapers on Multidisciplinary Panel Data Research 346, DIW Berlin, The German Socio-Economic Panel (SOEP).
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Citations

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Cited by:
  1. Brunello, Giorgio & Fort, Margherita & Weber, Guglielmo & Weiss, Christoph T., 2013. "Testing the Internal Validity of Compulsory School Reforms as Instrument for Years of Schooling," IZA Discussion Papers 7533, Institute for the Study of Labor (IZA).
  2. Nybom, Martin & Stuhler, Jan, 2011. "Heterogeneous Income Profiles and Life-Cycle Bias in Intergenerational Mobility Estimation," IZA Discussion Papers 5697, Institute for the Study of Labor (IZA).
  3. Rolf Aaberge & Magne Mogstad, 2012. "Inequality in current and lifetime income," Discussion Papers 726, Research Department of Statistics Norway.
  4. Giorgio Brunello & Guglielmo Weber & Christoph Weiss, 2012. "Books are forever: Early life conditions, education and lifetime earnings in Europe," ISER Discussion Paper 0842, Institute of Social and Economic Research, Osaka University.
  5. Brunello, Giorgio & Weber, Guglielmo & Weiss, Christoph T., 2012. "Books Are Forever: Early Life Conditions, Education and Lifetime Income," IZA Discussion Papers 6386, Institute for the Study of Labor (IZA).
  6. Bharadwaj, Prashant & Johnsen, Julian V. & Loken, Katrine Vellesen, 2012. "Smoking Bans, Maternal Smoking and Birth Outcomes," IZA Discussion Papers 7006, Institute for the Study of Labor (IZA).
  7. Bönke, Timm & Corneo, Giacomo & Lüthen, Holger, 2011. "Lifetime Earnings Inequality in Germany," IZA Discussion Papers 6020, Institute for the Study of Labor (IZA).
  8. Nybom, Martin, 2014. "The Distribution of Lifetime Earnings Returns to College," Working Paper Series 2/2014, Swedish Institute for Social Research.
  9. Haaland, Venke Furre, 2013. "The Lost Generation: Effects of Youth Labor Market Opportunities on Long-Term Labor Market Outcomes," UiS Working Papers in Economics and Finance 2013/8, University of Stavanger.
  10. Koerselman, Kristian & Uusitalo, Roope, 2013. "The Risk and Return of Human Capital Investments," IZA Discussion Papers 7752, Institute for the Study of Labor (IZA).

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