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How Important Are Fixed Effects and Time Trends in Estimating Returns to Schooling? Evidence from a Replication of Jacobson, Lalonde and Sullivan, 2005

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  • Dynarski, Susan

    (University of Michigan)

  • Jacob, Brian A.

    (University of Michigan)

  • Kreisman, Daniel

    (Georgia State University)

Abstract

A substantial and rapidly growing literature has developed around estimating earnings gains from two-year college degrees using administrative data. These papers almost universally employ a person-level fixed effects strategy to estimate earnings premia net of fixed attributes. We note that the seminal piece on which these papers build, Jacobson, Lalonde and Sullivan (Journal of Econometrics, 2005), provides theoretical and empirical evidence for the importance of additionally differencing out individual time-trends. The subsequent literature has not followed suit. Through replication we ask whether this matters. We show that it does, and further that these person-level time-trends need not be computationally burdensome in large administrative data. We recommend them as a unifying econometric standard for future work.

Suggested Citation

  • Dynarski, Susan & Jacob, Brian A. & Kreisman, Daniel, 2018. "How Important Are Fixed Effects and Time Trends in Estimating Returns to Schooling? Evidence from a Replication of Jacobson, Lalonde and Sullivan, 2005," IZA Discussion Papers 11935, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11935
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    1. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    2. Mittag, Nikolas, 2016. "A Simple Method to Estimate Large Fixed Effects Models Applied to Wage Determinants and Matching," IZA Discussion Papers 10447, Institute of Labor Economics (IZA).
    3. Carruthers, Celeste K. & Sanford, Thomas, 2018. "Way station or launching pad? Unpacking the returns to adult technical education," Journal of Public Economics, Elsevier, vol. 165(C), pages 146-159.
    4. Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
    5. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 17(Nov), pages 2-20.
    6. Christopher Jepsen & Kenneth Troske & Paul Coomes, 2014. "The Labor-Market Returns to Community College Degrees, Diplomas, and Certificates," Journal of Labor Economics, University of Chicago Press, vol. 32(1), pages 95-121.
    7. Ann Huff Stevens & Michal Kurlaender & Michel Grosz, 2019. "Career Technical Education and Labor Market Outcomes: Evidence from California Community Colleges," Journal of Human Resources, University of Wisconsin Press, vol. 54(4), pages 986-1036.
    8. Jacobson, Louis & LaLonde, Robert & G. Sullivan, Daniel, 2005. "Estimating the returns to community college schooling for displaced workers," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 271-304.
    9. Zeidenberg, Matthew & Scott, Marc & Belfield, Clive, 2015. "What about the non-completers? The labor market returns to progress in community college," Economics of Education Review, Elsevier, vol. 49(C), pages 142-156.
    10. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    11. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    12. Liu, Vivian Y.T. & Belfield, Clive R. & Trimble, Madeline J., 2015. "The medium-term labor market returns to community college awards: Evidence from North Carolina," Economics of Education Review, Elsevier, vol. 44(C), pages 42-55.
    13. Nikolas Mittag, 2015. "A Simple Method to Estimate Large Fixed Effects Models Applied to Wage Determinants and Matching," CERGE-EI Working Papers wp532, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    14. Louis Jacobson & Robert J. Lalonde & Daniel Sullivan, 2005. "The Impact of Community College Retraining on Older Displaced Workers: Should We Teach Old Dogs New Tricks?," ILR Review, Cornell University, ILR School, vol. 58(3), pages 398-415, April.
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    Cited by:

    1. Rüttenauer, Tobias & Ludwig, Volker, 2019. "Fixed Effects Individual Slopes: Accounting and Testing for Heterogeneous Effects in Panel Data or Other Multilevel Models," SocArXiv k4rnu, Center for Open Science.
    2. Darolia, Rajeev & Mueser, Peter & Cronin, Jacob, 2021. "Labor market returns to a prison GED," Economics of Education Review, Elsevier, vol. 82(C).
    3. Lauren Schudde & Meghan Shea, 2022. "Heterogeneity in the Returns to Credits for Public Two-Year College Entrants," Research in Higher Education, Springer;Association for Institutional Research, vol. 63(2), pages 337-367, March.
    4. Gaulke, Amanda P., 2021. "Post-Schooling off-The-Job training and its benefits," Labour Economics, Elsevier, vol. 70(C).
    5. Celeste K. Carruthers & Christopher Jepsen, 2020. "Vocational Education: An International Perspective," CESifo Working Paper Series 8718, CESifo.
    6. Gaulke, Amanda P., 2022. "Returns to bachelor’s degree completion among stopouts," Economics of Education Review, Elsevier, vol. 86(C).
    7. Finn Lattimore & Daniel M. Steinberg & Anna Zhu, 2023. "The Economic Effect of Gaining a New Qualification Later in Life," Papers 2304.01490, arXiv.org, revised Apr 2023.

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    More about this item

    Keywords

    fixed effects; community college; wages;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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