Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings

43 Pages Posted: 6 Mar 2011 Last revised: 7 Mar 2011

See all articles by Manudeep Bhuller

Manudeep Bhuller

University of Oslo - Department of Economics; Statistics Norway

Magne Mogstad

Statistics Norway; IZA Institute of Labor Economics

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 25, 2011

Abstract

This paper provides evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We also find that the cross-section estimates of the returns to schooling are highly sensitive to the age composition of the sample. They tend to increase with mean age, reflecting that higher educated workers experience more rapid earnings growth through most of the life-cycle. We further show that the returns to schooling in lifetime earnings are relatively low compared to what previous evidence based on cross-section data suggest.

Suggested Citation

Bhuller, Manudeep and Mogstad, Magne and Salvanes, Kjell G., Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings (February 25, 2011). NHH Dept. of Economics Discussion Paper No. 4/2011. Available at SSRN: https://ssrn.com/abstract=1774762 or http://dx.doi.org/10.2139/ssrn.1774762

Manudeep Bhuller

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

HOME PAGE: http://sites.google.com/site/manudeepbhuller

Statistics Norway ( email )

N-0033 Oslo
Norway

HOME PAGE: http://sites.google.com/site/manudeepbhuller

Magne Mogstad

Statistics Norway ( email )

N-0033 Oslo
Norway

IZA Institute of Labor Economics

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

Kjell G. Salvanes (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 5 595 9315 (Phone)
+47 5 595 9543 (Fax)

IZA Institute of Labor Economics

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

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