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Estimating Returns to Schooling When Schooling is Misreported

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  • Thomas J. Kane
  • Cecilia Elena Rouse
  • Douglas Staiger

Abstract

We propose a general method of moments technique to identify measurement error in self-reported and transcript-reported schooling using differences in wages, test scores, and other covariates to discern the relative verity of each measure. We also explore the implications of such reporting errors for both OLS and IV estimates of the returns to schooling. The results cast a new light on two common findings in the extensive literature on the returns to schooling: sheepskin effects' and the recent IV estimates, relying on natural experiments' to identify the payoff to schooling. First, respondents tend to self-report degree attainment much more accurately than they report educational attainment not corresponding with degree attainment. For instance, we estimate that more than 90 percent of those with associate's or bachelor's degrees accurately report degree attainment, while only slightly over half of those with 1 or 2 years of college credits accurately report their educational attainment. As a result, OLS estimates tend to understate returns per year of schooling and overstate degree effects. Second, because the measurement error in educational attainment is non-classical, IV estimates also tend to be biased, although the magnitude of the bias depends upon the nature of the measurement error in the region of educational attainment affected by the instrument.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7235.

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Date of creation: Jul 1999
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Handle: RePEc:nbr:nberwo:7235

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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. 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..
  3. Thomas J. Kane & Cecilia E. Rouse, 1993. "Labor Market Returns to Two- and Four-Year Colleges: Is a Credit a Credit and Do Degrees Matter?," NBER Working Papers 4268, National Bureau of Economic Research, Inc.
  4. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 9(1), pages 1-24, January.
  5. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 957-79, July.
  6. Richard B. Freeman, 1983. "Longitudinal Analyses of the Effects of Trade Unions," NBER Working Papers 1207, National Bureau of Economic Research, Inc.
  7. Orley Ashenfelter & Cecilia Rouse, 1997. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," NBER Working Papers 6106, National Bureau of Economic Research, Inc.
  8. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  9. Thomas J. Kane & Cecilia Rouse, 1993. "Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?," Working Papers 690, Princeton University, Department of Economics, Industrial Relations Section..
  10. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," NBER Working Papers 4483, National Bureau of Economic Research, Inc.
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  12. Hoxby, Caroline Minter, 1996. "How Teachers' Unions Affect Education Production," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 671-718, August.
  13. Orley Ashenfelter & David J. Zimmerman, 1997. "Estimates Of The Returns To Schooling From Sibling Data: Fathers, Sons, And Brothers," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 1-9, February.
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  15. Arthur Lewbel, 1997. "Constructing Instruments for Regressions with Measurement Error when no Additional Data are Available, with an Application to Patents and R&D," Econometrica, Econometric Society, Econometric Society, vol. 65(5), pages 1201-1214, September.
  16. Mellow, Wesley & Sider, Hal, 1983. "Accuracy of Response in Labor Market Surveys: Evidence and Implications," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 1(4), pages 331-44, October.
  17. 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, MIT Press, vol. 109(3), pages 531-63, August.
  18. George Jakubson, 1986. "Measurement Error in Binary Explanatory Variables in Panel Data Models: Why Do Cross Section and Panel Estimates of the Union Wage Effect Differ?," Working Papers 589, Princeton University, Department of Economics, Industrial Relations Section..
  19. Jin Huem Park, 1994. "Returns to Schooling: A Peculiar Deviation from Linearity," Working Papers 714, Princeton University, Department of Economics, Industrial Relations Section..
  20. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, Econometric Society, vol. 45(1), pages 1-22, January.
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  22. Aigner, Dennis J., 1973. "Regression with a binary independent variable subject to errors of observation," Journal of Econometrics, Elsevier, Elsevier, vol. 1(1), pages 49-59, March.
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