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Interpreting Sheepskin Effects in the Returns to Education

Author

Listed:
  • Alfonso Flores-Lagunes

    (University of Arizona)

  • Audrey Light

    (Ohio State University)

Abstract

Researchers often identify sheepskin effects by including degree attainment (D) and years of schooling (S) in a wage model, yet the source of independent variation in these measures is not well understood. We argue that S is negatively correlated with ability among degree-holders because the most able graduate the fastest, while a negative correlation exists among dropouts because the most able benefit from increased schooling. Using data from the NLSY79, we find that wages decrease with S among degree-holders and increase with S among dropouts. The independent variation in S and D needed for identification is not due to reporting error. Instead, we conclude that skill varies systematically among individuals with a given degree status.

Suggested Citation

  • Alfonso Flores-Lagunes & Audrey Light, "undated". "Interpreting Sheepskin Effects in the Returns to Education," Working Papers 22, Princeton University, Woodrow Wilson School of Public and International Affairs, Education Research Section..
  • Handle: RePEc:pri:edures:22
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    File URL: http://arks.princeton.edu/ark:/88435/dsp01qj72p717z
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    References listed on IDEAS

    as
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    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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