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A Parametric Control Function Approach to Estimating the Returns to Schooling in the Absence of Exclusion Restrictions: An Application to the NLSY

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  • Farré, Lídia

    () (University of Barcelona)

  • Klein, Roger

    () (Rutgers University)

  • Vella, Francis

    () (Georgetown University)

Abstract

An innovation which bypasses the need for instruments when estimating endogenous treatment effects is identification via conditional second moments. The most general of these approaches is Klein and Vella (2010) which models the conditional variances semiparametrically. While this is attractive, as identification is not reliant on parametric assumptions for variances, the non-parametric aspect of the estimation may discourage practitioners from its use. This paper outlines how the estimator can be implemented parametrically. The use of parametric assumptions is accompanied by a large reduction in computational and programming demands. We illustrate the approach by estimating the return to education using a sample drawn from the National Longitudinal Survey of Youth 1979. Accounting for endogeneity increases the estimate of the return to education from 6.8% to 11.2%.

Suggested Citation

  • Farré, Lídia & Klein, Roger & Vella, Francis, 2010. "A Parametric Control Function Approach to Estimating the Returns to Schooling in the Absence of Exclusion Restrictions: An Application to the NLSY," IZA Discussion Papers 4935, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4935
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Helmut Lütkepohl & George Milunivich & Minxian Yang, 2016. "Inference in Partially Identified Heteroskedastic Simultaneous Equations Models," Discussion Papers of DIW Berlin 1632, DIW Berlin, German Institute for Economic Research.
    2. Figueirêdo, Erik Alencar de & Nogueira, Lauro César Bezerra & Santana, Fernanda Leite, 2014. "Igualdade de Oportunidades: Analisando o papel das circunstâncias no desempenho do ENEM," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 68(3), September.
    3. Claudia Berg & M. Shahe Emran & Forhad Shilpi, 2013. "Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh," Working Papers 2013-8, The George Washington University, Institute for International Economic Policy.
    4. Postepska, Agnieszka, 2017. "Ethnic Capital and Intergenerational Transmission of Educational Attainment," IZA Discussion Papers 10851, Institute for the Study of Labor (IZA).
    5. Chen, Yuanyuan & Wang, Le & Zhang, Min, 2017. "Informal Search, Bad Search? The Effects of Job Search Method on Wages among Rural Migrants in Urban China," IZA Discussion Papers 11058, Institute for the Study of Labor (IZA).
    6. Daniel L. Millimet & Jayjit Roy, 2011. "Three New Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous," Working Papers 11-10, Department of Economics, Appalachian State University.
    7. Ali Moghtaderi & Avi Dor, 2016. "Immunization and Moral Hazard: The HPV Vaccine and Uptake of Cancer Screening," NBER Working Papers 22523, National Bureau of Economic Research, Inc.
    8. Chau, Tak Wai, 2015. "Identification through Heteroscedasticity: What If We Have the Wrong Form of Heteroscedasticity?," MPRA Paper 65888, University Library of Munich, Germany.
    9. repec:fgv:epgrbe:v:68:n:3:a:5 is not listed on IDEAS

    More about this item

    Keywords

    return to education; heteroskedasticity; endogeneity;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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