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Education Policy Reform and the Return to Schooling from Instrumental Variables

  • Denny, Kevin
  • Harmon, Colm

This paper exploits an unusual policy reform that had the effect of reducing the direct cost of schooling in Ireland in the late 1960’s. This gave rise to an increased level of schooling but with effects that vary substantially across family background. This interaction of educational reform and family background generates a set of instrumental variables that are used to estimate the return to schooling allowing for the endogeneity of schooling. Using a standard Mincer type model we find a large and well-determined rate of return of around 12% which is substantially higher than the OLS estimates of around 7%.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2518.

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Date of creation: Jul 2000
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Handle: RePEc:cpr:ceprdp:2518
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  1. Tussing, A. Dale, 1978. "Irish Educational Expenditures - Past, Present, and Future," Research Series, Economic and Social Research Institute (ESRI), number GRS92.
  2. Kevin Denny & Colm Harmon & Sandra Redmond, 2000. "Functional literacy, educational attainment and earnings - evidence from the international adult literacy survey," IFS Working Papers W00/09, Institute for Fiscal Studies.
  3. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics 435, Department of Economics.
  4. Kevin Denny & Colm Harmon & Dorren McMahon & Sandra Redmond, 1999. "Literacy and education in Ireland," Open Access publications 10197/154, School of Economics, University College Dublin.
  5. Joshua D. Angrist & Guido W. Imbens, 1995. "Average Causal Response with Variable Treatment Intensity," NBER Technical Working Papers 0127, National Bureau of Economic Research, Inc.
  6. Lang, Kevin, 1993. "Ability Bias, Discount Rate Bias and the Return to Education," MPRA Paper 24651, University Library of Munich, Germany.
  7. Jeffrey R. Kling, 2000. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," NBER Working Papers 7989, National Bureau of Economic Research, Inc.
  8. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, March.
  9. Ashenfelter, O. & Harmon, C. & Oosterbeek, H., 1999. "A Review of Estimates of the Schooling/ Earnings Relationship, with tests for Publication Bias," Papers 99/20, College Dublin, Department of Political Economy-.
  10. Meghir, Costas & Palme, Mårten, 1999. "Assessing the Effect of Schooling on Earnings Using a Social Experiment," SSE/EFI Working Paper Series in Economics and Finance 313, Stockholm School of Economics.
  11. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  12. Callan, T. & Harmon, C.P., 1997. "The Economic Return to Schooling in Ireland," Papers 97/23, College Dublin, Department of Political Economy-.
  13. Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 979-1014, November.
  14. Kakwani, Nanak, 1980. "On a Class of Poverty Measures," Econometrica, Econometric Society, vol. 48(2), pages 437-46, March.
  15. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics, Finance and Accounting Department Working Paper Series n540195, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  16. Callan, Tim & Wren, Anne, 1994. "Male-Female Wage Differentials: Analysis and Policy Issues," Research Series, Economic and Social Research Institute (ESRI), number GRS163.
  17. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  18. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," Working Papers 696, Princeton University, Department of Economics, Industrial Relations Section..
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