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Interpreting Sheepskin Effects in the Returns to Education

Listed author(s):
  • Alfonso Flores-Lagunes

    (University of Arizona)

  • Audrey Light

    (Ohio State University)

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.

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Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Education Research Section. in its series Working Papers with number 22.

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Handle: RePEc:pri:edures:22
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  1. Light, Audrey, 1998. "Estimating Returns to Schooling: When Does the Career Begin?," Economics of Education Review, Elsevier, vol. 17(1), pages 31-45, February.
  2. Morduch, Jonathan J. & Stern, Hal S., 1997. "Using mixture models to detect sex bias in health outcomes in Bangladesh," Journal of Econometrics, Elsevier, vol. 77(1), pages 259-276, March.
  3. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
  4. Hilmer, Michael J., 1997. "Does community college attendance provide a strategic path to a higher quality education?," Economics of Education Review, Elsevier, vol. 16(1), pages 59-68, February.
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  6. Freeman, Richard B, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 1-26, January.
  7. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-177, February.
  8. Thomas J. Kane & Cecilia Elena Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," NBER Working Papers 7235, National Bureau of Economic Research, Inc.
  9. Ana M. Ferrer & W. Craig Riddell, 2002. "The role of credentials in the Canadian labour market," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 879-905, November.
  10. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1491-1527.
  11. 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.
  12. Arcidiacono, Peter, 2004. "Ability sorting and the returns to college major," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 343-375.
  13. Weiss, Andrew, 1983. "A Sorting-cum-Learning Model of Education," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 420-442, June.
  14. Douglas, Stratford M & Conway, Karen Smith & Ferrier, Gary D, 1995. "A Switching Frontier Model for Imperfect Sample Separation Information: With an Application to Constrained Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 503-529, May.
  15. Audrey Light & Wayne Strayer, 2004. "Who Receives the College Wage Premium?: Assessing the Labor Market Returns to Degrees and College Transfer Patterns," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  16. Belman, Dale & Heywood, John S, 1991. "Sheepskin Effects in the Returns to Education: An Examination on Women and Minorities," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 720-724, November.
  17. Dominic J. Brewer & Eric R. Eide & Ronald G. Ehrenberg, 1999. "Does It Pay to Attend an Elite Private College? Cross-Cohort Evidence on the Effects of College Type on Earnings," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 104-123.
  18. Thomas J. Kane & Cecilia Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers 798, Princeton University, Department of Economics, Industrial Relations Section..
  19. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  20. Taubman, Paul J & Wales, Terence J, 1973. "Higher Education, Mental Ability, and Screening," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 28-55, Jan.-Feb..
  21. Ashenfelter, Orley & Krueger, Alan B, 1994. "Estimates of the Economic Returns to Schooling from a New Sample of Twins," American Economic Review, American Economic Association, vol. 84(5), pages 1157-1173, December.
  22. Groot, Wim & Oosterbeek, Hessel, 1994. "Earnings Effects of Different Components of Schooling: Human Capital versus Screening," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 317-321, May.
  23. Lee, Lung-Fei & Porter, Robert H, 1984. "Switching Regression Models with Imperfect Sample Separation Information-With an Application on Cartel Stability," Econometrica, Econometric Society, vol. 52(2), pages 391-418, March.
  24. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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