Hidden schooling: endogenous measurement error and bias in education and labor market experience

Kendall Kennedy

Journal of Population Economics, 2023, vol. 36, issue 4, No 21, 2723 pages

Abstract: Abstract Since 1980, 25% of US students repeated a grade during their academic career. Despite this, few economists account for retention when measuring education and experience, causing bias when retention is correlated with other regressors of interest. Rising minimum dropout ages since 1960 have increased retention, causing positive bias in 2SLS estimates of the returns to education. Retention also causes endogenous measurement error in potential experience. In addition to distorting experience-wage profiles across countries, this endogenous measurement error causes the residual Black-White wage gap and the returns to a high school diploma to be overstated. Proxying for age instead of potential experience reduces this bias, suggesting age, not potential experience, should be a standard control variable.

Keywords: Grade retention; Returns to education; Labor market experience; Measurement error (search for similar items in EconPapers)
JEL-codes: I21 I26 J11 J31 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00148-022-00918-w

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