IDEAS home Printed from https://ideas.repec.org/p/cir/cirwor/2002s-19.html
   My bibliography  Save this paper

Unobserved Ability and the Return to Schooling

Author

Listed:
  • Christian Belzil
  • Jörgen Hansen

Abstract

We estimate a structural dynamic programming model of schooling decisions with unobserved heterogeneity in school ability and market ability on a sample taken from the National Longitudinal Survey of Youth (NLSY). Both the instantaneous utility of attending school and the wage regression function are estimated flexibly. The null hypothesis that the local returns to schooling are constant is strongly rejected in favor of a convex wage regression function composed of 8 spline segments. The local returns are very low until grade 11 (1% per year or less), increase to 3.7% in grade 12 and exceed 10% only from grade 14 to grade 16. The average return increases smoothly from 0.4% (grade 7) to 4.6% (grade 16). The convexity of the log wage regression function implies that those who obtain more schooling also experience higher average returns. We strongly reject the null hypothesis that unobserved market ability is uncorrelated with realized schooling attainments, which underlies many previous studies that have used OLS to estimate the return to schooling. The correlation between realized schooling and market ability is found to be positive and is consistent with the existence of a positive "Ability Bias""." À partir d'un échantillon tiré du National Longitudinal Survey of Youth (NLSY), nous estimons un modèle de programmation dynamique des choix d'éducation en présence d'hétérogénéité non observée dans les capacités scolaires et aptitudes sur le marché de l'emploi. L'utilité instantanée de la fréquentation scolaire ainsi que la fonction de salaire sont évaluées de façon flexible. L'hypothèse nulle que les rendements marginaux de l'éducation sont constants est catégoriquement rejetée en faveur d'une fonction de salaire convexe composée de huit segments de fonction d'approximation spline. Les rendements marginaux s'avèrent être très faibles jusqu'à la onzième année (1 % ou moins par an), augmentent jusqu'à 3,7 % pour la douzième année et dépassent les 10 % pour les années 14 à 16. Le rendement moyen augmente uniformément de 0,4 % (7ème année) à 4,6 % (16ème année). La convexité de la fonction de régression logarithmique du salaire implique que ceux qui atteignent un plus haut niveau de scolarisation obtiennent également de meilleurs rendements moyens sur le marché de l'emploi. Nous rejetons l'hypothèse nulle selon laquelle les aptitudes non observées sur le marché du travail ne sont pas corrélées avec les niveaux d'éducation atteints. Ce résultat va à l'encontre de ceux obtenus dans plusieurs études antérieures qui estimaient le rendement de l'éducation par la méthode des MCO. Nous trouvons une corrélation positive entre le niveau de scolarité atteint et les aptitudes sur le marché de l'emploi, confirmant ainsi l'existence d'un «Biais d'aptitude» positif.

Suggested Citation

  • Christian Belzil & Jörgen Hansen, 2002. "Unobserved Ability and the Return to Schooling," CIRANO Working Papers 2002s-19, CIRANO.
  • Handle: RePEc:cir:cirwor:2002s-19
    as

    Download full text from publisher

    File URL: http://www.cirano.qc.ca/files/publications/2002s-19.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    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. Belzil, Christian & Hansen, Jorgen, 2007. "A structural analysis of the correlated random coefficient wage regression model," Journal of Econometrics, Elsevier, vol. 140(2), pages 827-848, October.
    4. Kenneth I. Wolpin & Mark R. Rosenzweig, 2000. "Natural "Natural Experiments" in Economics," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 827-874, December.
    5. Richard Blundell & James L. Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. Eckstein, Z. & Wolpin, K.I., 1997. "Youth Employment and Academic Perfomance in High School," Papers 24-97, Tel Aviv.
    7. Audrey Light & Wayne Strayer, 2000. "Determinants of College Completion: School Quality or Student Ability?," Journal of Human Resources, University of Wisconsin Press, vol. 35(2), pages 299-332.
    8. Whitney K. Newey & James L. Powell & Francis Vella, 1999. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Econometrica, Econometric Society, vol. 67(3), pages 565-604, May.
    9. Christian Belzil & Jörgen Hansen, 2002. "Unobserved Ability and the Return to Schooling," Econometrica, Econometric Society, vol. 70(5), pages 2075-2091, September.
    10. Christian Belzil & Jörgen Hansen, 2001. "Heterogeneous Returns to Human Capital and Dynamic Self-Selection," CIRANO Working Papers 2001s-10, CIRANO.
    11. Lang, Kevin, 1993. "Ability Bias, Discount Rate Bias and the Return to Education," MPRA Paper 24651, University Library of Munich, Germany.
    12. Christian Belzil & Jörgen Hansen, 2001. "Estimating the Intergenerational Education Correlation from a Dynamic Programming Model," CIRANO Working Papers 2001s-20, CIRANO.
    13. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    14. Charles F. Manski & John V. Pepper, 2000. "Monotone Instrumental Variables, with an Application to the Returns to Schooling," Econometrica, Econometric Society, vol. 68(4), pages 997-1012, July.
    15. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    16. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Return to Schooling; Dynamic Programming; Ability Bias; Discount Rate Bias; Rendements de l'éducation; Programmation dynamique; Biais d'aptitude; Biais de taux d'escompte;

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:2002s-19. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster). General contact details of provider: http://edirc.repec.org/data/ciranca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.