Schooling and Labor Market Impacts of a Natural Policy Experiment

. We use a nationally representative household survey to estimate returns to schooling in Venezuela from instrumental variables based on a supply‐side intervention in the education market. These estimates apply to a subgroup of individuals, in the spirit of the local average treatment effect (LATE) literature. Returns to schooling estimates that apply to a subgroup of individuals affected by the policy intervention may be more interesting from a policy perspective than the return to the ‘average’ individual. We use an instrument based on the 1980 education reform (the Organic Law of Education), which provided for 9 years of compulsory basic education. Alternative estimates derived from interacting the education reform with father's education are also obtained. The estimates are consistent with recent findings suggesting that the effect of education, at least for certain subgroups affected by policy intervention, is as large as or larger than what is suggested by ordinary least squares estimates.