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Interpreting Degree Effects in the Returns to Education

Alfonso Flores-Lagunes () and Audrey Light ()

Journal of Human Resources, 2010, vol. 45, issue 2

Abstract: Researchers often identify degree effects by including degree attainment (D) and years of schooling (S) in a wage model, yet the source of independent variation in these measures is not well understood. We argue that S is negatively correlated with ability among degree-holders because the most able graduate the fastest, but positively correlated among dropouts because the most able benefit from increased schooling. Using NLSY79 data, we find support for this argument; our findings also suggest that highest grade completed is the preferred measure of S for dropouts, while age at school exit is a more informative measure for degree-holders.

Date: 2010
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Handle: RePEc:uwp:jhriss:v:45:y:2010:i2:p439-467