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Using Unemployment Rates as Instruments to Estimate Returns to Schooling

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  • Jeremy Arkes

    () (Naval Postgraduate School, Graduate School of Business and Public Policy, 555 Dyer Rd., Monterey, CA 93943 USA)

Abstract

I use state unemployment rates during a person’s teenage years to estimate the returns to schooling. A higher unemployment rate reduces the opportunity costs of attending school. Using the same 1980 Census data set that Angrist and Krueger (1991) use, I also estimate returns to schooling with a modified version of their quarter-of-birth instrument. The estimates from the two-stage least squares (2SLS) model using the unemployment rate and the model using the quarter-of-birth instruments are almost identical. In addition, these 2SLS estimates are larger than the ordinary least squares (OLS) estimates, supporting this counterintuitive, yet prevalent, result in the literature.

Suggested Citation

  • Jeremy Arkes, 2010. "Using Unemployment Rates as Instruments to Estimate Returns to Schooling," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 711-722, January.
  • Handle: RePEc:sej:ancoec:v:76:3:y:2010:p:711-722
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    File URL: http://dx.doi.org/10.4284/sej.2010.76.3.711
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    Citations

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    Cited by:

    1. Riphahn, Regina T. & Zibrowius, Michael, 2015. "Apprenticeship, Vocational Training and Early Labor Market Outcomes in East and West Germany," IZA Discussion Papers 8901, Institute for the Study of Labor (IZA).
    2. Jacopo Mazza & Hans van Ophem & Joop Hartog, 2011. "Unobserved Heterogeneity and Risk in Wage Variance: Does Schooling provide Earnings Insurance?," Tinbergen Institute Discussion Papers 11-045/3, Tinbergen Institute.
    3. Kasey S. Buckles & Daniel M. Hungerman, 2013. "Season of Birth and Later Outcomes: Old Questions, New Answers," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 711-724, July.
    4. Erik Figueiredo & José Silva Netto Junior, 2014. "More equal but not so fair: an analysis of Brazilian income distribution from 1995 to 2009," Empirical Economics, Springer, vol. 46(4), pages 1325-1337, June.
    5. repec:bla:obuest:v:79:y:2017:i:6:p:1087-1124 is not listed on IDEAS
    6. Marisa Hidalgo Hidalgo & Iñigo Iturbe-Ormaetxe Kortajarene, 2014. "Long-run effects on poverty of public expenditure in education," Working Papers. Serie AD 2014-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Elliott Fan & Jin-Tan Liu & Yen-Chien Chen, 2014. "Is the 'Quarter of Birth' Endogenous? Evidence From One Million Siblings in Taiwan," NBER Working Papers 20444, National Bureau of Economic Research, Inc.
    8. Mazza, Jacopo & van Ophem, Hans & Hartog, Joop, 2013. "Unobserved heterogeneity and risk in wage variance: Does more schooling reduce earnings risk?," Labour Economics, Elsevier, vol. 24(C), pages 323-338.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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