Bounds on the Return to Education in Australia using Ability Bias

Martine Mariotti and Juergen Meinecke ()

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We estimate the average return to education and the ability bias applying a parametric model of intra-household correlation suggested by Card (1999, 2001) to the Household, Income and Labour Dynamics in Australia survey. Using the subsample of dual-earner households, we obtain an average return to education of 5.5% and an ability bias of 19%. Our paper is also the first to provide informative inference results on ability bias. We extrapolate the ability bias estimate from dual-earner households to the whole sample. Using Manski's (1989) nonparametric no assumptions bounds to partially identify the ability bias for the whole sample, we find that ability bias lies between 9% and 63%. This implies an average return to education of between 3.0% and 7.4% for the whole sample. Our estimates are conservative and compare well to other estimates of the average return to education which typically lie to the right of that interval.

JEL-codes: I21 I28 J24 (search for similar items in EconPapers)
Pages: 23 Pages
Date: 2011-08
New Economics Papers: this item is included in nep-lab and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2011-551

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