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Using heteroscedasticity to estimate the returns to education

Vincent (Vincent Peter) Hogan and Roberto Rigobon

Open Access publications from School of Economics, University College Dublin

Abstract: We apply a new estimator to the measurement of the economic returns to education. We control for endogenous education, unobserved ability and measurement error using only the natural heteroscedasticty of wages and education attainment. Our prefered estimate, 6.07%, is closer to the OLS estimate but smaller (and more precise) than the estimates typically reported by studies that use IV. Our results indicate that the biases generated by unobserved ability and measurement error tend to cancel each other out as suggested by Griliches (1977). We also present Monte Carlo evidence to show that the finite sample bias our estimator is small.

Keywords: Identification; Returns to Education; Education--Economic aspects; Heteroscedasticity; Wages--Effect of education on (search for similar items in EconPapers)
JEL-codes: C30 I20 J31 (search for similar items in EconPapers)
Date: 2002-06
References: Add references at CitEc
Citations: View citations in EconPapers (17)

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http://hdl.handle.net/10197/1100 First version, 2002 (application/pdf)

Related works:
Working Paper: Using heteroscedasticity to estimate the returns to education (2003) Downloads
Working Paper: Using Heteroscedasticity to Estimate the Returns to Education (2002) Downloads
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