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Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity

  • Nils Saniter

In this paper I investigate the causal returns to education for different educational groups in Germany by employing a new method by Klein and Vella (2010) that bases identification on the presence of conditional heteroskedasticity. Compared to IV methods, key advantages of this approach are unbiased estimates in the absence of instruments and parameter interpretation that is not bounded to local average treatment effects. Using data from the German Socio-Economic Panel Study (SOEP) I find that the causal return to education is 8.5% for the entire sample, 2.3% for graduates from the basic school track and 11% for graduates from a higher school track. Across these groups the endogeneity bias in simple OLS regressions varies significantly. This confirms recent evidence in the literature on Germany. Various robustness checks support the findings.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.405742.de/diw_sp0458.pdf
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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 458.

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Length: 46 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp458
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  1. Colm Harmon & Ian Walker, 1995. "Estimates of the economic return to schooling for the United Kingdom," Open Access publications 10197/647, School of Economics, University College Dublin.
  2. Ira N. Gang & Klaus F. Zimmermann, 1999. "Is Child Like Parent? Educational Attainment and Ethnic Origin," Departmental Working Papers 199614, Rutgers University, Department of Economics.
  3. Thomas J. Kane & Cecilia Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers 798, Princeton University, Department of Economics, Industrial Relations Section..
  4. Paul J Devereux & Robert A Hart, 2009. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Working Papers 200924, School of Economics, University College Dublin.
  5. Klein, Roger & Vella, Francis, 2010. "Estimating a class of triangular simultaneous equations models without exclusion restrictions," Journal of Econometrics, Elsevier, vol. 154(2), pages 154-164, February.
  6. Uusitalo, R. & Conneely, K., 1998. "Estimating Heterogeneous Treatment Effects in the Becker Schooling Model," University of Helsinki, Department of Economics 435, Department of Economics.
  7. Jorn-Steffen Pischke & Till von Wachter, 2008. "Zero returns to compulsory schooling in Germany: evidence and interpretation," LSE Research Online Documents on Economics 19509, London School of Economics and Political Science, LSE Library.
  8. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers ECO2001/09, European University Institute.
  9. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, June.
  10. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  11. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  12. Thomas Siedler, 2010. "Schooling and Citizenship in a Young Democracy: Evidence from Postwar Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 315-338, 06.
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