Interpreting Degree Effects in the Returns to Education
University of Florida - Food & Resource Economics Department; IZA, Bonn
Ohio State University (OSU) - Department of Economics
Researchers often identify degree 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, but positively correlated among dropouts because the most able benefit from increased schooling. Using NLSY79 data, we find support for this argument; our findings also suggest that highest grade completed is the preferred measure of S for dropouts, while age at school exit is a more informative measure for degree-holders.
Number of Pages in PDF File: 36
JEL Classification: I21, J31working papers series
Date posted: May 6, 2009
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