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Life-cycle bias and the returns to schooling in current and lifetime earnings

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This paper uses a unique data set with nearly career-long earnings histories to provide evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.

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  • Manudeep Bhuller & Magne Mogstad & Kjell G.Salvanes, 2011. "Life-cycle bias and the returns to schooling in current and lifetime earnings," Discussion Papers 666, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:666
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    Cited by:

    1. Venke Furre Haaland, 2016. "The lost generation: Effects of youth labor market opportunities on long-term labor market outcomes," Discussion Papers 835, Statistics Norway, Research Department.
    2. Rolf Aaberge & Magne Mogstad, 2015. "Inequality in current and lifetime income," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(2), pages 217-230, February.
    3. Fredriksson, Peter & Hensvik, Lena & Nordström Skans, Oskar, 2015. "Mismatch of Talent Evidence on Match Quality, Entry Wages, and Job Mobility," Research Papers in Economics 2015:10, Stockholm University, Department of Economics.
    4. Sarah Cattan & Daniel A. Kamhöfer & Martin Karlsson & Therese Nilsson, 2017. "The short- and long-term effects of student absence: evidence from Sweden," IFS Working Papers W17/21, Institute for Fiscal Studies.
    5. Bharadwaj, Prashant & Lundborg, Petter & Rooth, Dan-Olof, 2015. "Birth Weight in the Long-Run," IZA Discussion Papers 9175, Institute for the Study of Labor (IZA).
    6. Lorraine Deardon & Neil Shephard & Jack Britton & Anna Vignoles, 2016. "How English domiciled graduate earnings vary with gender, institution attended, subject and socio-economic background," Working Paper 397281, Harvard University OpenScholar.
    7. Heidrich, Stefanie, 2015. "Intergenerational Mobility in Sweden: a Regional Perspective," Umeå Economic Studies 916, Umeå University, Department of Economics.
    8. Bharadwaj, Prashant & Johnsen, Julian V. & Løken, Katrine V., 2014. "Smoking bans, maternal smoking and birth outcomes," Journal of Public Economics, Elsevier, pages 72-93.
    9. Brunello, Giorgio & Weber, Guglielmo & Weiss, Christoph T., 2012. "Books Are Forever: Early Life Conditions, Education and Lifetime Income," IZA Discussion Papers 6386, Institute for the Study of Labor (IZA).
    10. Buscha, Franz & Dickson, Matt, 2015. "The Wage Returns to Education over the Life-Cycle: Heterogeneity and the Role of Experience," IZA Discussion Papers 9596, Institute for the Study of Labor (IZA).
    11. Koerselman, Kristian & Uusitalo, Roope, 2014. "The risk and return of human capital investments," Labour Economics, Elsevier, vol. 30(C), pages 154-163.
    12. repec:ucp:jlabec:doi:10.1086/692475 is not listed on IDEAS
    13. Haaland, Venke Furre, 2013. "The Lost Generation: Effects of Youth Labor Market Opportunities on Long-Term Labor Market Outcomes," UiS Working Papers in Economics and Finance 2013/8, University of Stavanger.
    14. Timm Bönke & Giacomo Corneo & Holger Lüthen, 2015. "Lifetime Earnings Inequality in Germany," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 171-208.
    15. Lorraine Deardon & Neil Shephard & Jack Britton & Anna Vignoles, 2016. "How English domiciled graduate earnings vary with gender, institution attended, subject and socio-economic background," Working Paper 397281, Harvard University OpenScholar.
    16. G. Brunello & M. Fort & G. Weber & C. T. Weiss, 2013. "Testing the Internal Validity of Compulsory School Reforms as Instrument for Years of Schooling," Working Papers wp911, Dipartimento Scienze Economiche, Universita' di Bologna.
    17. Martin Nybom & Jan Stuhler, 2016. "Heterogeneous Income Profiles and Lifecycle Bias in Intergenerational Mobility Estimation," Journal of Human Resources, University of Wisconsin Press, vol. 51(1), pages 239-268.
    18. Martin Nybom, 2017. "The Distribution of Lifetime Earnings Returns to College," Journal of Labor Economics, University of Chicago Press, vol. 35(4), pages 903-952.
    19. Cattan, Sarah & Kamhöfer, Daniel A. & Karlsson, Martin & Nilsson, Therese, 2017. "The Short- and Long-Term Effects of Student Absence: Evidence from Sweden," IZA Discussion Papers 10995, Institute for the Study of Labor (IZA).
    20. Sander Gerritsen, 2014. "Zero returns to compulsory schooling: Is it certification or skills that matters?," CPB Discussion Paper 293, CPB Netherlands Bureau for Economic Policy Analysis.
    21. Zimmermann, Markus & Fitzenberger, Bernd & Osikominu, Aderonke, 2016. "Cohort Changes in Educational Pathways and Returns to Education," Annual Conference 2016 (Augsburg): Demographic Change 145927, Verein für Socialpolitik / German Economic Association.
    22. Giorgio Brunello & Guglielmo Weber & Christoph Weiss, 2012. "Books are forever: Early life conditions, education and lifetime earnings in Europe," ISER Discussion Paper 0842, Institute of Social and Economic Research, Osaka University.
    23. Cattan, Sarah & Kamhofer, Daniel A. & Karlsson, Martin & Nilsson, Therese, 2017. "The Short- and Long-term Effects of Student Absence: Evidence from Sweden," Working Paper Series 1188, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Returns to schooling; life-cycle bias; lifetime earnings; current earnings; errors-in-variables model;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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