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Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity

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  • Saniter, Nils

    ()
    (DIW Berlin)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6813.

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Length: 49 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6813

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Related research

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 & Zimmermann, Klaus F, 1996. "Is Child Like Parent? Educational Attainment and Ethnic Origin," CEPR Discussion Papers 1461, C.E.P.R. Discussion Papers.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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..
  8. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  9. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics 435, Department of Economics.
  10. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers ECO2001/09, European University Institute.
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Cited by:
  1. Kamhöfer, Daniel & Schmitz, Hendrik, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79910, Verein für Socialpolitik / German Economic Association.
  2. 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).

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