On the Sensitivity of Return to Schooling Estimates to Estimation Methods, Model Specification, and Influential Outliers if Identification is Weak

25 Pages Posted: 2 Feb 2009

See all articles by David A. Jaeger

David A. Jaeger

Ph.D. Program in Economics, City University of New York Graduate Center; National Bureau of Economic Research (NBER); University of Cologne - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); University College London - CReAM - Centre for Research and Analysis of Migration

Juliane Parys

University of Bonn

Abstract

We provide a comparison of return to schooling estimates based on an influential study by Angrist and Krueger (1991) using two stage least squares (TSLS), limited information maximum likelihood (LIML), jackknife (JIVE), and split sample instrumental variables (SSIV) estimation. We find that the estimated return to education is quite sensitive to the age controls used in the models as well as the estimation method used. In particular, we provide evidence that JIVE coefficients' standard errors are inflated by a group of extreme years of education observations, for which identification is especially weak. We propose to use Cook's Distance in order to identify influential outliers having substantial influence on first-stage JIVE coefficients and fitted values.

Keywords: Cook's Distance, heteroskedasticity, outliers, return to education, specification, weak instruments

JEL Classification: C13, C31, J31

Suggested Citation

Jaeger, David A. and Parys, Juliane, On the Sensitivity of Return to Schooling Estimates to Estimation Methods, Model Specification, and Influential Outliers if Identification is Weak. IZA Discussion Paper No. 3961. Available at SSRN: https://ssrn.com/abstract=1336058

David A. Jaeger (Contact Author)

Ph.D. Program in Economics, City University of New York Graduate Center ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Cologne - Department of Economics ( email )

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IZA Institute of Labor Economics

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University College London - CReAM - Centre for Research and Analysis of Migration ( email )

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Juliane Parys

University of Bonn ( email )

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Postfach 2220
Bonn, D-53012
Germany

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