Estimating Returns to Schooling When Schooling is Misreported

43 Pages Posted: 2 Nov 1999 Last revised: 5 May 2000

See all articles by Thomas J. Kane

Thomas J. Kane

University of California, Los Angeles (UCLA) - School of Public Policy & Social Research; National Bureau of Economic Research (NBER)

Cecilia E. Rouse

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER)

Douglas Staiger

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1999

Abstract

We propose a general method of moments technique to identify measurement error in self-reported and transcript-reported schooling using differences in wages, test scores, and other covariates to discern the relative verity of each measure. We also explore the implications of such reporting errors for both OLS and IV estimates of the returns to schooling. The results cast a new light on two common findings in the extensive literature on the returns to schooling: sheepskin effects' and the recent IV estimates, relying on natural experiments' to identify the payoff to schooling. First, respondents tend to self-report degree attainment much more accurately than they report educational attainment not corresponding with degree attainment. For instance, we estimate that more than 90 percent of those with associate's or bachelor's degrees accurately report degree attainment, while only slightly over half of those with 1 or 2 years of college credits accurately report their educational attainment. As a result, OLS estimates tend to understate returns per year of schooling and overstate degree effects. Second, because the measurement error in educational attainment is non-classical, IV estimates also tend to be biased, although the magnitude of the bias depends upon the nature of the measurement error in the region of educational attainment affected by the instrument.

Suggested Citation

Kane, Thomas J. and Rouse, Cecilia E. and Staiger, Douglas, Estimating Returns to Schooling When Schooling is Misreported (July 1999). NBER Working Paper No. w7235. Available at SSRN: https://ssrn.com/abstract=172512

Thomas J. Kane

University of California, Los Angeles (UCLA) - School of Public Policy & Social Research ( email )

Box 951656
Los Angeles, CA 90095
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Cecilia E. Rouse (Contact Author)

Princeton University - Industrial Relations Section ( email )

Princeton, NJ 08544-2098
United States
609-258-4042 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Douglas Staiger

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-643-2979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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