Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems

49 Pages Posted: 18 Jul 2000 Last revised: 18 Oct 2010

See all articles by David Card

David Card

University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Date Written: June 2000

Abstract

This paper reviews a set of recent studies that have attempted to measure the causal effect of education on labor market earnings by using institutional features of the supply side of the education system as exogenous determinants of schooling outcomes. A simple theoretical model that highlights the role of comparative advantage in the optimal schooling decision is presented and used to motivate an extended discussion of econometric issues, including the properties of ordinary least squares and instrumental variables estimators. A review of studies that have used compulsory schooling laws, differences in the accessibility of schools, and similar features as instrumental variables for completed education reveals that the resulting estimates of the return to schooling are typically as big or bigger than the corresponding ordinary least squares estimates. One interpretation of this finding is that marginal returns to education among the low-education subgroups typically affected by supply-side innovations tend to relatively high, reflecting their high marginal costs of schooling, rather than low ability that limits their return to education.

Suggested Citation

Card, David E., Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems (June 2000). NBER Working Paper No. w7769. Available at SSRN: https://ssrn.com/abstract=235725

David E. Card (Contact Author)

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