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A Human Capital Model of the Effects of Abilities and Family Background on Optimal Schooling Levels

  • Regan, Tracy L.

    ()

    (Boston College)

  • Burghardt, Galen

    ()

    (Calyon Financial)

  • Oaxaca, Ronald L.

    ()

    (University of Arizona)

This paper develops a theoretical model of optimal schooling levels where ability and family background are the central explanatory variables. We derive schooling demand and supply functions based on individual wealth maximization. Using NLSY79 data we stratify our sample into one-year "FTE" work experience cohorts for 1985-1989. Mincer's (1974) "overtaking" cohort (the years of work experience at which individuals' observed earnings approximately equal what they would have been based on schooling and ability alone) corresponds to 13 FTE years of work experience yielding on average a rate of return of 9.6 percent and an average (optimal) 11.4 years of schooling.

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File URL: http://ftp.iza.org/dp1927.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1927.

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Length: 45 pages
Date of creation: Jan 2006
Date of revision:
Publication status: published in: Economic Inquiry, 2007, 45 (4), 721-738
Handle: RePEc:iza:izadps:dp1927
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  2. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages S74-S103, Part II, .
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  12. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-77, February.
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  17. Arkes, Jeremy, 1999. "What Do Educational Credentials Signal and Why Do Employers Value Credentials?," Economics of Education Review, Elsevier, vol. 18(1), pages 133-141, February.
  18. Jeffrey R. Kling, 2000. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," NBER Working Papers 7989, National Bureau of Economic Research, Inc.
  19. John M. Barron & Mark C. Berger & Dan A. Black, 1997. "On-the-Job Training," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ojt, June.
  20. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
  21. Orley Ashenfelter & David Zimmerman, 1993. "Estimates of the Return to Schooling From Sibling Data: Fathers, Sons and Brothers," Working Papers 697, Princeton University, Department of Economics, Industrial Relations Section..
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  25. John Shea, 1997. "Does Parents' Money Matter?," NBER Working Papers 6026, National Bureau of Economic Research, Inc.
  26. Lang, Kevin, 1993. "Ability Bias, Discount Rate Bias and the Return to Education," MPRA Paper 24651, University Library of Munich, Germany.
  27. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
  28. Neumark, David, 1999. "Biases in twin estimates of the return to schooling," Economics of Education Review, Elsevier, vol. 18(2), pages 143-148, April.
  29. 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.
  30. Hause, John C, 1972. "Earnings Profile: Ability and Schooling," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages S108-S38, Part II, .
  31. Jaeger, David A & Page, Marianne E, 1996. "Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 733-40, November.
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