Interpreting Sheepskin Effects in the Returns to Education
Alfonso Flores-Lagunes () and
Audrey Light ()
Working Papers from Princeton University, Woodrow Wilson School of Public and International Affairs, Education Research Section.
Researchers often identify sheepskin 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, while a negative correlation exists among dropouts because the most able benefit from increased schooling. Using data from the NLSY79, we find that wages decrease with S among degree-holders and increase with S among dropouts. The independent variation in S and D needed for identification is not due to reporting error. Instead, we conclude that skill varies systematically among individuals with a given degree status.
JEL-codes: I26 (search for similar items in EconPapers)
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