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Using heteroscedasticity to estimate the returns to education

Author

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  • Vincent (Vincent Peter) Hogan
  • Roberto Rigobon

Abstract

We apply a new estimator to the measurement of the economic returns to education. We control for endogenous education, unobserved ability and measurement error using only the natural heteroscedasticty of wages and education attainment. Our prefered estimate, 6.07%, is closer to the OLS estimate but smaller (and more precise) than the estimates typically reported by studies that use IV. Our results indicate that the biases generated by unobserved ability and measurement error tend to cancel each other out as suggested by Griliches (1977). We also present Monte Carlo evidence to show that the finite sample bias our estimator is small.

Suggested Citation

  • Vincent (Vincent Peter) Hogan & Roberto Rigobon, 2002. "Using heteroscedasticity to estimate the returns to education," Working Papers 10197/1100, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:10197/1100
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    File URL: http://hdl.handle.net/10197/1100
    File Function: First version, 2002
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    More about this item

    Keywords

    Identification; Returns to Education; Education--Economic aspects; Heteroscedasticity; Wages--Effect of education on;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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