How Important are Fixed Effects and Time Trends in Estimating Returns to Schooling? Evidence Froma Replication of Jacobson, Lalonde and Sullivan, 2005

18 Pages Posted: 9 May 2018

See all articles by Susan M. Dynarski

Susan M. Dynarski

National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan at Ann Arbor - School of Education

Brian A. Jacob

University of Michigan at Ann Arbor

Daniel Kreisman

Georgia State University

Date Written: October 2017

Abstract

A substantial and rapidly growing literature has developed around estimating earnings gains from two-year college degrees using administrative data. These papers almost universally employ a person-level fixed effects strategy to estimate earnings premia net of fixed attributes. We note that the seminal piece on which these papers build, Jacobson, Lalonde and Sullivan (Journal of Economics, 2005), provides theoretical and empirical evidence for the importance of additionally differencing out individual time-trends. The subsequent literature has not followed suit. Through replication we ask whether this matters. We show that it does, and further that these person-level time-trends need not be computationally burdensome in large administrative data. We recommend them as a unifying econometric standard for future work.

Keywords: Fixed Effects, Community College, Wages

JEL Classification: C51, C52, C54, I26, J31

Suggested Citation

Dynarski, Susan M. and Jacob, Brian A. and Kreisman, Daniel, How Important are Fixed Effects and Time Trends in Estimating Returns to Schooling? Evidence Froma Replication of Jacobson, Lalonde and Sullivan, 2005 (October 2017). Andrew Young School of Policy Studies Research Paper Series No. 18-04. Available at SSRN: https://ssrn.com/abstract=3175945 or http://dx.doi.org/10.2139/ssrn.3175945

Susan M. Dynarski

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States

University of Michigan at Ann Arbor - School of Education ( email )

610 East University Avenue
Ann Arbor, MI 48109-1259
United States

Brian A. Jacob

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Daniel Kreisman (Contact Author)

Georgia State University ( email )

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