Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings

Manudeep Bhuller, Magne Mogstad and Kjell G Salvanes

No 5788, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper uses a unique data set with nearly career-long earnings histories to provide evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.

Keywords: returns to schooling; life-cycle bias; lifetime earnings; current earnings; errors-in-variables model (search for similar items in EconPapers)
JEL-codes: J24 J31 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-06
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (47)

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Working Paper: Life-cycle bias and the returns to schooling in current and lifetime earnings (2011)
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