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Earnings, Schooling, and Ability Revisited

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  • David Card

    (Princeton University)

Abstract

This paper presents a survey and interpretation of recent research on the return to education. The empirical findings in a series of current papers suggest that the causal effect of education on earnings is understated by standard estimation methods. Using a simple model of optimal schooling developed by Gary Becker (1967), I derive an explicit formula for the conventional estimate of the return to schooling and for alternative instrumental variables and fixed-effects estimators. The analysis suggests that instrumental variables estimates based on "interventions" that affect the schooling choices of children from relatively disadvantaged family backgrounds will tend to exceed the corresponding OLS estimates.

Suggested Citation

  • David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:331
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    References listed on IDEAS

    as
    1. George Psacharopoulos, 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 583-604.
    2. Joshua D. Angrist & Alan B. Krueger, 1991. "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery," Working Papers 670, Princeton University, Department of Economics, Industrial Relations Section..
    3. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    4. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    5. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," Working Papers 696, Princeton University, Department of Economics, Industrial Relations Section..
    6. 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.
    7. repec:fth:prinin:335 is not listed on IDEAS
    8. Jin Huem Park, 1994. "Returns to Schooling: A Peculiar Deviation from Linearity," Working Papers 714, Princeton University, Department of Economics, Industrial Relations Section..
    9. Jin Huem Park, 1994. "Returns to Schooling: A Peculiar Deviation from Linearity," Working Papers 714, Princeton University, Department of Economics, Industrial Relations Section..
    10. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," Working Papers 696, Princeton University, Department of Economics, Industrial Relations Section..
    11. Robert J. LaLonde, 2003. "Employment and Training Programs," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 517-586 National Bureau of Economic Research, Inc.
    12. Thomas J. Kane & Cecilia E. Rouse, 1993. "Labor Market Returns to Two- and Four-Year Colleges: Is a Credit a Credit and Do Degrees Matter?," NBER Working Papers 4268, National Bureau of Economic Research, Inc.
    13. Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-323, July.
    14. Orley Ashenfelter & David J. Zimmerman, 1997. "Estimates Of The Returns To Schooling From Sibling Data: Fathers, Sons, And Brothers," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 1-9, February.
    15. 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.
    16. Hause, John C, 1972. "Earnings Profile: Ability and Schooling," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 108-138, Part II, .
    17. repec:fth:prinin:317 is not listed on IDEAS
    18. Thomas J. Kane & Cecilia E. Rouse, 1993. "Labor Market Returns to Two- And Four-Year College: Is a Credit a Credit And Do Degrees Matter?," Working Papers 690, Princeton University, Department of Economics, Industrial Relations Section..
    19. Thomas J. Kane & Cecilia Rouse, 1993. "Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?," Working Papers 690, Princeton University, Department of Economics, Industrial Relations Section..
    20. repec:fth:prinin:311 is not listed on IDEAS
    21. Lang, Kevin, 1993. "Ability Bias, Discount Rate Bias and the Return to Education," MPRA Paper 24651, University Library of Munich, Germany.
    22. repec:fth:prinin:290 is not listed on IDEAS
    23. Kristin F. Butcher & Anne Case, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 531-563.
    24. Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 979-1014.
    25. Joshua Angrist & Alan Krueger, 1991. "Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery," Working Papers 670, Princeton University, Department of Economics, Industrial Relations Section..
    26. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    returns to education; ability bias;

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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