Persistence Bias and Schooling Returns

34 Pages Posted: 3 May 2014

See all articles by Corrado Andini

Corrado Andini

IZA Institute of Labor Economics

Abstract

A well-established empirical literature suggests that individual wages are persistent. Several theoretical arguments support this empirical finding. Yet, the standard approach to the estimation of schooling returns does not account for this fact. This paper investigates the consequences of disregarding earnings persistence. In particular, it shows that the most commonly used static-model estimators of schooling coefficients are subject to an omitted-variable bias which can be named "persistence bias".

Keywords: schooling, wages, dynamic panel-data models

JEL Classification: C23, I21, J31

Suggested Citation

Andini, Corrado, Persistence Bias and Schooling Returns. IZA Discussion Paper No. 8143. Available at SSRN: https://ssrn.com/abstract=2432427

Corrado Andini (Contact Author)

IZA Institute of Labor Economics

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

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