Thomas Kane

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ln CPS data, the 20% of the civilian labor force with 1-3 years of college earn 15% more
than high school graduates. We use data from the National Longitudinal Study of the High School
Class of I972 which includes postsecondary transcript data and the NLS Y to study the distinct returns
to 2-year and 4-year college attendance and degree completion. Controlling for family income and
measured ability, wage differentials for both 2-year and 4-year college credits are positive and
similar. We find that the average 2-year and 4-year college student earned roughly 5% more than
similar high school graduates for every year of credits completed. Second, average bachelor and
associate degree recipients did not earn significantly more than those with similar numbers of college
credits and no degree, suggesting that the credentialling effects of these degree are small. We report
similar results from the NLSY and the CPS.
In addition to controlling for family background and ability measures, we pursue two IV
strategies to identify measurement error and selection bias. First, we use self-reported education as
an instrument for transcript reported education. Second, we use public tuition and distance from the
closest 2-year and 4-year colleges as instruments, which we take as orthogonal to schooling
measurement error and other unobserved characteristics of college students. Although research over
the past decade has been preoccupied with selection bias, the two biases roughly cancel each other,
suggesting that the results above are, if anything, understated.

Year of Publication
Date Published
Publication Language
Citation Key
American Economic Review, Vol. 83, No. 3
Kane, T., & Rouse, C. (1993). Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?. Retrieved from (Original work published January 1993)
Working Papers

We propose a general method of moments technique to identify measurement error in self-reported
and transcript-reported schooling using differences in wages, test scores and other covariates to discern the
relative verity of each measure. We also explore the implications of such reporting errors for both OLS and
IV estimates of the returns to schooling. The results cast a new light on two common findings in the
extensive literature on the retums to schooling: “sheepskin effects” and the recent IV estimates, relying on
“natural experiments” to identify the payoff to schooling. First, respondents tend to self-report degree
attainment much more accurately than they report educational attainment not corresponding with degree
attainment. For instance, we estimate that more than 90 percent of those with associate’s or bachelor’s
degrees accurately report degree attainment, while only slightly over half of those with l or 2 years of college
credits accurately report their educational attainment. As a result, OLS estimates tend to understate returns
per year of schooling and overstate degree effects. Second, because the measurement error in educational
attainment is non-classical, IV estimates also tend to be biased, although the magnitude of the bias depends
upon the nature of the measurement error in the region of educational attainment affected by the instrument.

Year of Publication
Date Published
Publication Language
Citation Key
Staiger, D., Kane, T., & Rouse, C. (1999). Estimating Returns to Schooling When Schooling is Misreported. Retrieved from (Original work published June 1999)
Working Papers

In "The Varied Economic Returns to Postsecondary Education: New Evidence from the
Class of 1972", an article recently published in the Journal of Human Resources (Volume 28,
no. 2, pp. 365-382), Norton Grubb reaches two main conclusions: (1) students who enroll in
two-year colleges without completing degrees earn no more than comparable high school
graduates; and (2) degrees from two-year colleges and vocational and technical institutes only
indirectly lead to higher earnings by providing students with access to jobs in which they can
accumulate experience and on-the-job training (i.e., access to "careers" instead of "jobs"). Given
that roughly half of those entering college today do so at community colleges and that roughly
a fifth of federal Pell Grant subsidies are spent at these institutions, such results are quite
However, in this comment we show that several of the variables used in Grubb’s paper
are severely mismeasured and that, when they are corrected with reasonable alternatives, his
conclusions no longer receive empirical support. On the contrary, even those who enter but fail
to complete degrees at community colleges do seem to earn significantly more than similar high
school graduates. Further, controlling for work experience has relatively little effect on the
estimated returns.

Year of Publication
Date Published
Publication Language
Citation Key
Journal of Human Resources, Vol. 30, No. 1, Winter 1995
Kane, T., & Rouse, C. (1994). Comment on W. Norton Grubb, "The Varied Economic Returns to Postsecondary Education: New Evidence from the Class of 1972". Retrieved from (Original work published January 1994)
Working Papers