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Labor Market Returns to Two- and Four-Year Colleges: Is a Credit a Credit and Do Degrees Matter?

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  • Thomas J. Kane
  • Cecilia E. Rouse
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    Abstract

    In CPS data, the 20% of the civilian labor force with 1-3 years of college earn 15% more than high school graduates. We use data from the National Longitudinal Study of the High School Class of1972 which includes postsecondary transcript data and the NLSY to study the distinct returns to 2-year and 4-year college attendance and degree completion. Controlling for background and measured ability, wage differentials for both 2-year and 4-year college credits are positive and similar. We find that the average 2-year and 4-year college student earned roughly 5% more than high school graduates for every year of credits completed. Second, average bachelor and associate degree recipients did not earn significantly more than those with similar numbers of college credits and no degree, suggesting that the credentialing effects of these degrees are small. We report similar results from the NLSY and the CPS. We also pursue two IV strategies to identify measurement error and selection bias. First, we use self-reported education as an instrument for transcript reported education. Second, we use public tuition and distance from the closest 2-year and 4-year colleges as instruments, which we take as orthogonal to schooling measurement error and other unobserved characteristics of college students. We find that in our data the two biases roughly cancel each other, suggesting that the results above are, if anything, understated.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4268.

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    Date of creation: Jan 1993
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    Publication status: published as American Economic Review, June 1995, Vol. 85, #3, pp. 600-614
    Handle: RePEc:nbr:nberwo:4268

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    1. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
    2. Angrist, J.D. & Imbens, G.W., 1991. "Sources of Identifying Information in Evaluation Models," Papers 9142, Tilburg - Center for Economic Research.
    3. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
    4. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
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    6. Joshua Angrist & Alan Krueger, 1991. "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery," Working Papers 670, Princeton University, Department of Economics, Industrial Relations Section..
    7. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
    8. Angrist, Joshua D, 1990. "Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records," American Economic Review, American Economic Association, vol. 80(3), pages 313-36, June.
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    10. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
    11. Joseph G. Altonji, 1992. "The Effects of High School Curriculum on Education and Labor Market Outcomes," NBER Working Papers 4142, National Bureau of Economic Research, Inc.
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    13. Comay, Yochanan & Melnik, A & Pollatschek, M A, 1973. "The Option Value of Education and the Optimal Path for Investment in Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 421-35, June.
    14. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    15. Sanders Korenman & David Neumark, 1992. "Marriage, Motherhood, and Wages," Journal of Human Resources, University of Wisconsin Press, vol. 27(2), pages 233-255.
    16. Butcher, Kristin F & Case, Anne, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 531-63, August.
    17. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
    18. Manski, Charles F., 1989. "Schooling as experimentation: a reappraisal of the postsecondary dropout phenomenon," Economics of Education Review, Elsevier, vol. 8(4), pages 305-312, August.
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