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Title: The Role of Endogeneity in the Relationship Between Education and Earnings: A Semiparametric Approach

Citation Type: Miscellaneous

Publication Year: 2013

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Abstract: Heckman et al. (1996) challenge the claim of Card and Krueger (1992) that returns to education for different states in US are approximately log-linear above the state-specific threshold level of schooling. Heckman et al. (2008) formally reject the hypothesis of linearity in returns to education in the Mincer regression under exogenous schooling and earnings. I test and reject the linearity assumption under endogeneity of schooling and earnings. I estimate the marginal rate of return to education using both a polynomial model and a semiparametric partial linear model based on the standard Mincer regression. To analyze the linearity assumption under endogeneity of schooling and earnings, I use a control function approach for IV estimation with spouses and parents education as instruments. Results suggest that estimates that do not account for endogeneity are biased downwards at the tails of the education spectrum and biased upwards for returns between middle-school and college education.

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Authors: Kharbanda, Varun

Publisher: University of Iowa

Data Collections: IPUMS USA

Topics: Education, Labor Force and Occupational Structure

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