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Education, Self-Selection and Intergenerational Transmission of Abilities

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  • Adalbert Mayer

Abstract

This paper shows that the relationships between earnings and college education across generations can be largely explained by the transmission of abilities. Notably, the positive relationship between the earnings of fathers and college attendance of sons does not require a role for credit constraints. Intergenerational relationships make it possible to infer the potential earnings of a person for different levels of education. I find that the average return to college is substantially below the difference in average earnings of workers with and without a college education. I consider an intergenerational self-selection model of education. Two distinct abilities are transmitted from parents to their children. One ability is useful in occupations that are obtained after receiving a college education; the other ability is utilized in occupations that do not require prior college training. The members of each generation decide whether to attend college in order to maximize their lifetime earnings. Using a simulated method of moments approach, I estimate the structural parameters of the model with data from the PSID. I am able to estimate the parameters of the model without the assumption made by Willis and Rosen (1979) that parental features affect the educational choice of a son, but are not correlated with unobserved determinants of the son’s earnings. I obtain a positive correlation between skills used by college and high school educated workers, and I counter their finding of no ability bias.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 107.

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Date of creation: 2004
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Handle: RePEc:red:sed004:107

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Keywords: Return to education; intergenerational;

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Cited by:
  1. Vincenzo Caponi, 2009. "Intergenerational Transmission of Abilities and Self Selection of Mexican Immigrants," 2009 Meeting Papers 1144, Society for Economic Dynamics.
  2. Toshihiko Mukoyama & Aysegul Sahin, 2005. "Costs of Business Cycles for Unskilled Workers," Working Papers 05002, Concordia University, Department of Economics.
  3. Montserrat Vilalta-Bufi(Universitat de Barcelona) & Ausias Ribo (Universitat de Barcelona), 2012. "Educational expansion, intergenerational mobility and over-education," Working Papers in Economics 284, Universitat de Barcelona. Espai de Recerca en Economia.
  4. Regina Riphahn & Florian Schieferdecker, 2008. "The Transition to Tertiary Education and Parental Background over Time," Working Papers 063, Bavarian Graduate Program in Economics (BGPE).
  5. Toshihiko Mukoyama & Aysegül Sahin, 2005. "The cost of business cycles for unskilled workers," Staff Reports 214, Federal Reserve Bank of New York.

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