Ability Bias, Discount Rate Bias and the Return to Education

Kevin Lang

MPRA Paper from University Library of Munich, Germany

Abstract: I reconsider various methods for correcting for bias in estimates of the returns to schooling. I argue that the literature on ability bias has ignored complications implicit in theoretical formulations of the choice of human capital. In particular, such models imply that adding ability to the wage equation may not be informative about the importance of bias and that variables correlated with the discount rate will generally not be suitable instruments for education. Indeed discount rate variation may generate downward bias. Estimation of a structural wage/schooling model suggests that OLS estimates of the return to schooling are biased downwards.

Keywords: instrumental variables; returns to schooling; discount rates; ability bias (search for similar items in EconPapers)
JEL-codes: C13 C31 J30 (search for similar items in EconPapers)
Date: 1993-03-12
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Citations: View citations in EconPapers (99)

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