returns to schooling

Abstract

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
1999
Number
419
Date Published
06/1999
Publication Language
eng
Citation Key
8345
Staiger, D., Kane, T., & Rouse, C. (1999). Estimating Returns to Schooling When Schooling is Misreported. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01vm40xr59g (Original work published June 1999)
Working Papers
Abstract

Is the correlation between income and educational attainment a result of
the payoff to investments in schooling? Since the experiment of randomly
selecting individuals to go to school cannot be performed, non-experimental
methods must be used to estimate the economic returns to schooling. This
paper reviews new studies that measure the effect of schooling on income (1)
by using comparisons of brothers, fathers and sons, and twins and (2) that
focus on natural experiments. These studies provide very credible evidence
that schooling does increase incomes and that earlier studies may have under-
estimated the role of schooling in determining incomes.

Year of Publication
1991
Number
292
Date Published
11/1991
Publication Language
eng
Citation Key
Labour Economics and Productivity, Vol. 6, 1994
Ashenfelter, O. (1991). How Convincing Is The Evidence Linking Education and Income?. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01cf95jb46r (Original work published November 1991)
Working Papers