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How different are returns to education? Evidence from German school choices

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  • Dörte Dömeland

Abstract

This study presents estimates of returns to post-secondary education and wage differentials among graduates fromdifferent secondary schools in Germany. I use an empirical model that captures the basic features of the German education system. It controls for selection into post-secondary education and treats latter as endogenous in the wage equation. My results show that OLS estimates are severely biased. The direction of the bias depends on the secondary school type. Annual returns to post-secondary education differ significantly: they are eight times higher for graduates from the highest secondary school than for graduates from the lowest secondary school.

Suggested Citation

  • Dörte Dömeland, 2002. "How different are returns to education? Evidence from German school choices," Economics Working Papers 610, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:610
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    References listed on IDEAS

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    1. Ichino, Andrea & Winter-Ebmer, Rudolf, 1999. "Lower and upper bounds of returns to schooling: An exercise in IV estimation with different instruments," European Economic Review, Elsevier, vol. 43(4-6), pages 889-901, April.
    2. Kenny, Lawrence W, et al, 1979. "Returns to College Education: An Investigation of Self-Selection Bias Based on the Project Talent Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 775-789, October.
    3. Susan N. Houseman & Katharine G. Abraham, 1995. "Earnings Inequality in Germany," Book chapters authored by Upjohn Institute researchers,in: Richard B. Freeman & Lawrence F. Katz (ed.), Differences and Changes in Wage Structures, pages 371-403 W.E. Upjohn Institute for Employment Research.
    4. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
    5. Blackburn, McKinley L & Neumark, David, 1995. "Are OLS Estimates of the Return to Schooling Biased Downward? Another Look," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 217-230, May.
    6. G. S. Maddala & Lung-Fei Lee, 1976. "Recursive Models with Qualitative Endogenous Variables," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 525-545 National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Education; endogenous switching; wage differentials;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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