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Using Unemployment Rates as Instruments to Estimate Returns to Schooling

Listed author(s):
  • Jeremy Arkes


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

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    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.

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    Article provided by Southern Economic Association in its journal Southern Economic Journal.

    Volume (Year): 76 (2010)
    Issue (Month): 3 (January)
    Pages: 711-722

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    Handle: RePEc:sej:ancoec:v:76:3:y:2010:p:711-722
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