Estimating the Returns to College Quality with Multiple Proxies for Quality

Dan Black and Jeffrey Smith

Journal of Labor Economics, 2006, vol. 24, issue 3, 701-728

Abstract: Existing studies of the effects of college quality on wages typically rely on a single proxy variable for college quality. This study questions the wisdom of using a single proxy given that it likely contains substantial measurement error. We consider four econometric approaches to the problem that involve the use of multiple proxies for college quality: factor analysis, instruments variables, a method recently proposed by Lubotsky and Wittenberg, and a GMM estimator. Our estimates suggest that the existing literature understates the wage effects of college quality and illustrate the value of using multiple proxies in this and other similar contexts.

Date: 2006
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