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Estimating the Return to College in Britain Using Regression and Propensity Score Matching

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  • Wen Fan

    (University College Dublin)

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    Abstract

    College graduates tend to earn more than non-graduates but it is difficult to ascertain how much of this empirical association between wages and college degree is due to the causal effect of a college degree and how much is due to unobserved factors that influence both wages and education (e.g. ability). In this paper, I use the 1970 British Cohort Study to examine the college premium for people who have a similar ability level by using a restricted sample of people who are all college eligible but some never attend. Compared to using the full sample, restricting the sample to college-eligible reduces the return to college significantly using both regression and propensity score matching (PSM) estimates. The finding suggests the importance of comparing individuals of similar ability levels when estimating the return to college.

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    File URL: http://www.ucd.ie/t4cms/WP11_19.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 201119.

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    Length: 34 pages
    Date of creation: 30 Sep 2011
    Date of revision:
    Handle: RePEc:ucn:wpaper:201119

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    Keywords: return to college; regression; propensity score matching;

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    References

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    1. Nigel C. O’Leary & Peter J. Sloane, 2005. "The Return to a University Education in Great Britain," National Institute Economic Review, National Institute of Economic and Social Research, vol. 193(1), pages 75-89, July.
    2. Lorraine Dearden, 1998. "Ability, families, education and earnings in Britain," IFS Working Papers W98/14, Institute for Fiscal Studies.
    3. Alberto Abadie & Guido W. Imbens, 2008. "On the Failure of the Bootstrap for Matching Estimators," Econometrica, Econometric Society, vol. 76(6), pages 1537-1557, November.
    4. Paul J Devereux & Wen Fan, 2011. "Earnings Returns to the British Education Expansion," Working Papers 201111, School Of Economics, University College Dublin.
    5. Vincenzo Caponi & Miana Plesca, 2009. "Post-secondary education in Canada: can ability bias explain the earnings gap between college and university graduates?," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1100-1131, August.
    6. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-66, May.
    7. Karsten Hansen & James J. Heckman & Kathleen J. Mullen, 2003. "The Effect of Schooling and Ability on Achievement Test Scores," NBER Working Papers 9881, National Bureau of Economic Research, Inc.
    8. Arnaud Chevalier & Colm Harmon & Ian Walker & Yu Zhu, 2004. "Does Education Raise Productivity, or Just Reflect it?," Economic Journal, Royal Economic Society, vol. 114(499), pages F499-F517, November.
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