Lower and Upper Bounds of Returns to Schooling: An Exercise in IV estimation with Different Instruments

Andrea Ichino and Rudolf Winter-Ebmer

No 2007, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Several recent studies based on 'exogenous' sources of variation in education outcomes show Instrumental Variables (IV) estimates of returns to schooling that are substantially higher than the corresponding Ordinary Least Squares (OLS) estimates. Card (1995a) suggests that these results can be explained by the existence of heterogenity in individual returns and by the fact that these studies are based on instruments that influence only the educational decision of individuals with high marginal returns due to either liquidity constraints or to high ability. This conclusion is consistent with the Local Average Treatment Effect (LATE) interpretation of IV (Imbens and Angrist, 1994), according to which IV identifies only the average returns of those who comply with the assignment-to-treatment mechanism implied by the instrument. We show evidence for Germany suggesting that returns to schooling are heterogeneous, instruments do matter and the LATE interpretation of IV makes sense. With an appropriate choice of instruments we also show how IV can be used to approximate the range of variations of returns to schooling in Germany.

Keywords: Instrumental Variables; returns to schooling; Wage Determination (search for similar items in EconPapers)
JEL-codes: C25 I21 J24 J31 (search for similar items in EconPapers)
Date: 1998-10
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2007 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Lower and upper bounds of returns to schooling: An exercise in IV estimation with different instruments (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2007

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2007

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().