Returns to Schooling: A Selectivity Bias Approach with Continuous Variable Choice for Brazil
Catholic University of Brasilia Working Paper
20 Pages Posted: 19 Sep 2002
Date Written: July 2002
The objective of this paper is to investigate the returns to schooling issue for Brazil based on four distinct methodologies, in order to reach a reliable estimate for this type of measurement. The first is based on a simple estimate of the returns to schooling equation by OLS. However, considering that the coefficients obtained by this method may be biased, due to endogeneity problems as well as the omission of the "abilities" variable, the paper investigates the issue further by inquiring into two possible sources of selection bias. The first one suggests that said bias is caused by the job search strategy adopted by the agent. In this case, wages do not depend solely on the wage supply but also on a job-search strategy [Gronau (1974)]. Second, in this paper we use the methodology developed by Garen (1984) that allows the optimal choice of years of schooling, since this variable is continuous and variable, which means that the problem may be dealt with at a higher degree of practicality. Lastly, a pseudo-panel analysis is conducted in an attempt to deal with the relevant variable omission problem in the model.
Keywords: Returns to schooling, endogeneity, wages, job-search, selectivity bias
JEL Classification: C31, I29
Suggested Citation: Suggested Citation