Family Background Variables as Instruments for Education in Income Regressions: A Bayesian Analysis

Lennart Hoogerheide, Joern Block and Roy Thurik
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Lennart Hoogerheide: Econometric Institute, Erasmus University Rotterdam

No 10-075/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper was published in the Economics of Education Review , 2012, 31(5), 515-523.

The validity of family background variables instrumenting education in income regressions has been much criticized. In this paper, we use data of the 2004 German Socio-Economic Panel and Bayesian analysis in order to analyze to what degree violations of the strong validity assumption affect the estimation results. We show that, in case of moderate direct effects of the instrument on the dependent variable, the results do not deviate much from the benchmark case of no such effect (perfect validity of the instrument). The size of the bias is in many cases smaller than the standard error of education’s estimated coefficient. Thus, the violation of the strict validity assumption does not necessarily lead to strongly different results when compared to the strict validity case. This provides confidence in the use of family background variables as instruments in income regressions.

Keywords: education; family background variables; earnings; income; instrumental variables; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C13 C15 J24 J30 (search for similar items in EconPapers)
Date: 2010-08-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Family background variables as instruments for education in income regressions: A Bayesian analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100075

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