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

40 Pages Posted: 28 Jun 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

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Abstract

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

Bhuller, Manudeep and Mogstad, Magne and Salvanes, Kjell G., Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings. IZA Discussion Paper No. 5788. Available at SSRN: https://ssrn.com/abstract=1872736

Manudeep Bhuller (Contact Author)

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

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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