A Parametric Control Function Approach to Estimating the Returns to Schooling in the Absence of Exclusion Restrictions: An Application to the Nlsy

44 Pages Posted: 29 Jun 2010

See all articles by Lidia Farré

Lidia Farré

Spanish Council for Scientific Research (CSIC) - Institute for Economic Analysis; Universidad de Alicante

Roger W. Klein

Rutgers, The State University of New Jersey - Department of Economics

Francis Vella

Georgetown University; IZA Institute of Labor Economics

Abstract

An innovation which bypasses the need for instruments when estimating endogenous treatment effects is identification via conditional second moments. The most general of these approaches is Klein and Vella (2010) which models the conditional variances semiparametrically. While this is attractive, as identification is not reliant on parametric assumptions for variances, the non-parametric aspect of the estimation may discourage practitioners from its use. This paper outlines how the estimator can be implemented parametrically. The use of parametric assumptions is accompanied by a large reduction in computational and programming demands. We illustrate the approach by estimating the return to education using a sample drawn from the National Longitudinal Survey of Youth 1979. Accounting for endogeneity increases the estimate of the return to education from 6.8% to 11.2%.

Keywords: return to education, heteroskedasticity, endogeneity

JEL Classification: J31, C31

Suggested Citation

Farré, Lidia and Klein, Roger W. and Vella, Francis, A Parametric Control Function Approach to Estimating the Returns to Schooling in the Absence of Exclusion Restrictions: An Application to the Nlsy. IZA Discussion Paper No. 4935, Available at SSRN: https://ssrn.com/abstract=1631070

Lidia Farré (Contact Author)

Spanish Council for Scientific Research (CSIC) - Institute for Economic Analysis ( email )

UAB Campus
E-08193 Bellaterra
Spain

Universidad de Alicante ( email )

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, Alicante 03690
Spain

Roger W. Klein

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Francis Vella

Georgetown University ( email )

Washington, DC 20057
United States
202-687-5573 (Phone)

HOME PAGE: http://explore.georgetown.edu/people/fgv/

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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