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Endogeneity of schooling in the wage function

  • Maluccio, John A.

This paper evaluates the effect (in terms of private returns) of investment in education on wages in the rural Philippines. Statistical endogeneity of education in the wage function may result from (1) unobserved determinants of education that also influence wages and/or (2) measurement error. Panel data are used that provide relevant instruments, particularly distance to schools and measures of household resources, at the time of schooling, to endogenize investments in education while estimating wage functions. The estimated return to education increases more than 60 percent when education is endogenized. This increase is robust to the inclusion of a measure of health, models of selection into the sample, and measurement error. The paper suggests how heterogeneous returns to education might account for the magnitude of the downward bias in returns to schooling.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series FCND discussion papers with number 54.

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Date of creation: 1998
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Handle: RePEc:fpr:fcnddp:54
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  1. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September.
  2. Orley Ashenfelter & David J. Zimmerman, 1997. "Estimates Of The Returns To Schooling From Sibling Data: Fathers, Sons, And Brothers," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 1-9, February.
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  4. Pitt, Mark M & Rosenzweig, Mark R & Gibbons, Donna M, 1993. "The Determinants and Consequences of the Placement of Government Programs in Indonesia," World Bank Economic Review, World Bank Group, vol. 7(3), pages 319-48, September.
  5. Glewwe, Paul, 1996. "The relevance of standard estimates of rates of return to schooling for education policy: A critical assessment," Journal of Development Economics, Elsevier, vol. 51(2), pages 267-290, December.
  6. Thomas, D. & Strauss, J., 1997. "Health and Wages: Evidence on Men and Women in Urban Brazil," Papers 97-05, RAND - Reprint Series.
  7. T. Paul Schultz, 2003. "Wage Rentals for Reproducible Human Capital: Evidence from Ghana and the Ivory Coast," Working Papers 868, Economic Growth Center, Yale University.
  8. Alan Krueger & Orley Ashenfelter, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," NBER Working Papers 4143, National Bureau of Economic Research, Inc.
  9. David Card, 1994. "Earnings, Schooling, and Ability Revisited," NBER Working Papers 4832, National Bureau of Economic Research, Inc.
  10. 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..
  11. Rosenzweig, Mark R., 1988. "Labor markets in low-income countries," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 15, pages 713-762 Elsevier.
  12. George Psacharopoulos, 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 583-604.
  13. Sahn, David E. & Alderman, Harold, 1988. "The effects of human capital on wages, and the determinants of labor supply in a developing country," Journal of Development Economics, Elsevier, vol. 29(2), pages 157-183, September.
  14. Joshua Angrist & Alan Krueger, 1991. "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery," Working Papers 670, Princeton University, Department of Economics, Industrial Relations Section..
  15. Lam. D. & Schoeni, R.F., 1996. "Effects on Family Background on Earnings and Returns to Schooling: Evidence from Brazil," Papers 96-13, RAND - Reprint Series.
  16. Rosenzweig, Mark R & Wolpin, Kenneth I, 1986. "Evaluating the Effects of Optimally Distributed Public Programs: ChildHealth and Family Planning Interventions," American Economic Review, American Economic Association, vol. 76(3), pages 470-82, June.
  17. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  18. Kane, Thomas J & Rouse, Cecilia Elena, 1995. "Labor-Market Returns to Two- and Four-Year College," American Economic Review, American Economic Association, vol. 85(3), pages 600-614, June.
  19. Strauss, J. & Thomas, D., 1991. "Wages, Schooling and Background: Investments in Men and Women in Urban Brazil," Papers 649, Yale - Economic Growth Center.
  20. Angrist, J.D. & Imbens, G.W., 1992. "Average causal response with variable treatment intensity," Discussion Paper 1992-34, Tilburg University, Center for Economic Research.
  21. Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-23, July.
  22. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  23. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October.
  24. Thomas, Duncan & Maluccio, John, 1996. "Fertility, Contraceptive Choice, and Public Policy in Zimbabwe," World Bank Economic Review, World Bank Group, vol. 10(1), pages 189-222, January.
  25. Harmon, Colm & Walker, Ian, 1995. "Estimates of the Economic Return to Schooling for the United Kingdom," American Economic Review, American Economic Association, vol. 85(5), pages 1278-86, December.
  26. 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.
  27. Jacoby, Hanan G, 1994. "Borrowing Constraints and Progress through School: Evidence from Peru," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 151-60, February.
  28. Schultz, T. Paul, 1997. "Assessing the productive benefits of nutrition and health: An integrated human capital approach," Journal of Econometrics, Elsevier, vol. 77(1), pages 141-158, March.
  29. Behrman, Jere R & Birdsall, Nancy, 1983. "The Quality of Schooling: Quantity Alone is Misleading," American Economic Review, American Economic Association, vol. 73(5), pages 928-46, December.
  30. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1982. "Governmental interventions and household behavior in a developing country : Anticipating the unanticipated consequences of social programs," Journal of Development Economics, Elsevier, vol. 10(2), pages 209-225, April.
  31. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  32. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
  33. Behrman, Jere R & Wolfe, Barbara L, 1984. "The Socioeconomic Impact of Schooling in a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 296-303, May.
  34. Schultz, T. Paul, 1988. "Education investments and returns," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 13, pages 543-630 Elsevier.
  35. Butcher, Kristin F & Case, Anne, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 531-63, August.
  36. King, Elizabeth M. & Lillard, Lee A., 1987. "Education policy and schooling attainment in Malaysia and the Philippines," Economics of Education Review, Elsevier, vol. 6(2), pages 167-181, April.
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