Estimating the Payoff to Attending a More Selective College: an Application of Selection on Observables and Unobservables

51 Pages Posted: 29 Apr 2000 Last revised: 13 Oct 2010

See all articles by Stacy Berg Dale

Stacy Berg Dale

Andrew W. Mellon Foundation

Alan B. Krueger

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: August 1999

Abstract

There are many estimates of the effect of college quality on students' subsequent earnings. One difficulty interpreting past estimates, however, is that elite colleges admit students, in part, based on characteristics that are related to their earnings capacity. Since some of these characteristics are unobserved by researchers who later estimate wage equations, it is difficult to parse out the effect of attending a selective college from the students' pre-college characteristics. This paper uses information on the set of colleges at which students were accepted and rejected to remove the effect of unobserved characteristics that influence college admission. Specifically, we match students in the newly colleted College and Beyond (C&B) Data Set who were admitted to and rejected from a similar set of institutions, and estimate fixed effects models. As another approach to adjust for selection bias, we control for the average SAT score of the schools to which students applied using both the C&B and National Longitudinal Survey of the High School Class of 1972. We find that students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools but attended less selective colleges. However, the average tuition charged by the school is significantly related to the students' subsequent earnings. Indeed, we find a substantial internal rate of return from attending a more costly college. Lastly, the payoff to attending an elite college appears to be greater for students from more disadvantaged family backgrounds.

Suggested Citation

Dale, Stacy Berg and Krueger, Alan B., Estimating the Payoff to Attending a More Selective College: an Application of Selection on Observables and Unobservables (August 1999). NBER Working Paper No. w7322. Available at SSRN: https://ssrn.com/abstract=197108

Stacy Berg Dale

Andrew W. Mellon Foundation

140 East 62nd Street
New York, NY 10021
United States

Alan B. Krueger (Contact Author)

Princeton University - Industrial Relations Section ( email )

Princeton, NJ 08544-2098
United States
609-258-4046 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

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

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