Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings
40 Pages Posted: 28 Jun 2011
This paper uses a unique data set with nearly career-long earnings histories to provide 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 a 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 further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.
Keywords: returns to schooling, life-cycle bias, lifetime earnings, current earnings, errors-in-variables model
JEL Classification: J24, J31
Suggested Citation: Suggested Citation