Estimating Returns to Education when the IV Sample is Selective

Le Wang

No 7103, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The literature estimating returns to education has often utilized spousal education and parental education as instrument variables (IV). However, due to usual survey designs, both IVs are available only for the individuals whose spouse or parents are present in the same household. The IV estimates based on these selective sub-samples may be inconsistent, even when the IVs satisfy the standard assumptions. In this paper, we examine the empirical relevance of this issue in the Chinese context. To our surprise, unlike the selection issue in other situations, this kind of selection does not appear particularly worrisome, suggesting that the previous IV results are robust. In particular, using China Household Income Project 1995 and 2002, we find that correcting for this potential issue has only a modest impact on the magnitude of the standard IV estimates using parental education as an IV, but a negligible impact on those using spousal education. Using the specification tests proposed, we find that these impacts are generally not statistically significant. These results are further confirmed by our analysis using U.S. data. We believe that these results are of use to both policymakers and practitioners.

Keywords: sample selection; returns to education; Chinese labor market; instrument variable estimation (search for similar items in EconPapers)
JEL-codes: C14 C31 I21 J24 P52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-12
New Economics Papers: this item is included in nep-edu, nep-lma and nep-tra
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Published - published in: Labour Economics, 2013, 21, 74-85

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Journal Article: Estimating returns to education when the IV sample is selective (2013)
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