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Lower and Upper Bounds of Returns on Schooling: An Exercise in IV Estimation with Different Instruments

European Economic Review, May 1999

Posted: 14 May 1999  

Rudolf Winter-Ebmer

Johannes Kepler University Linz - Department of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Andrea Ichino

University of Bologna

Abstract

Many recent studies that were based on "exogenous" sources of variation in education outcomes' IV estimates of returns to schooling were substantially higher than the corresponding OLS estimates. Card (1995a) suggests that these results are explained by the existence of heterogeneity in individual returns and by the fact that these studies are based on instruments that influence only the educational decision of individuals with high marginal returns due to either liquidity constraints or to high ability. This conclusion is consistent with the Local Average Treatment Effect (LATE) interpretation of IV (Imbens and Angrist, 1994) according to which IV identifies only the average returns of those who comply with the assignment-to-treatment mechanism implied by the instrument. We show evidence for Germany suggesting that returns to schooling are heterogeneous, instruments matter and the LATE interpretation of IV makes sense. With an appropriate choice of instruments we also show how IV can be used to approximate the range of variations of returns to schooling in Germany.

Notes: This is a description of the paper and not the actual abstract.

JEL Classification: J31, I21, J24, C25

Suggested Citation

Winter-Ebmer, Rudolf and Ichino, Andrea, Lower and Upper Bounds of Returns on Schooling: An Exercise in IV Estimation with Different Instruments. European Economic Review, May 1999. Available at SSRN: https://ssrn.com/abstract=143852

Rudolf Winter-Ebmer (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8236 (Phone)
+43 732 2468 8238 (Fax)

HOME PAGE: http://www.econ.jku.at/winter

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

HOME PAGE: http://www.ihs.ac.at

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrea Ichino

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy
+39 349 5965919 (Phone)

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