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Interpreting Instrumental Variables Estimates of the Returns to Schooling

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  • Kling, Jeffrey R

Abstract

This article synthesizes economic insights from theoretical models of schooling choice based on individual benefits and econometric work interpreting instrumental variables estimates as weighted averages of individual-specific causal effects. Linkages are illustrated using college proximity to instrument for schooling. After characterizing groups differentially affected by the instrument according to family background, 1 directly compute weights underlying estimation of the overall return. In analyzing the level of schooling at which individuals change their behavior in response to the instrument, I demonstrate that this instrument has its greatest impact on the transition from high school to college. Specification robustness is also examined.

Suggested Citation

  • Kling, Jeffrey R, 2001. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 358-364, July.
  • Handle: RePEc:bes:jnlbes:v:19:y:2001:i:3:p:358-64
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    1. Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 979-1014.
    2. James Heckman & Edward Vytlacil, 1998. "Instrumental Variables Methods for the Correlated Random Coefficient Model: Estimating the Average Rate of Return to Schooling When the Return is Correlated with Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 33(4), pages 974-987.
    3. Wooldridge, Jeffrey M., 1997. "On two stage least squares estimation of the average treatment effect in a random coefficient model," Economics Letters, Elsevier, vol. 56(2), pages 129-133, October.
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    6. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    7. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
    8. Caroline M. Hoxby, 1997. "How the Changing Market Structure of U.S. Higher Education Explains College Tuition," NBER Working Papers 6323, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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