Using Heteroscedasticity to Estimate the Returns to Education

27 Pages Posted: 15 Sep 2002 Last revised: 28 Oct 2010

See all articles by Vincent Hogan

Vincent Hogan

National University of Ireland - University College Dublin; University of Warwick

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: September 2002

Abstract

We apply a new estimator to the measurement of the economic returns to education. We control for endogenous education, unobserved ability and measurement error using only the natural heteroscedasticty of wages and education attainment. Our prefered estimate, 6.07%, is closer to the OLS estimate but smaller (and more precise) than the estimates typically reported by studies that use IV. Our results indicate that the biases generated by unobserved ability and measurement error tend to cancel each other out as suggested by Griliches (1977). We also present Monte Carlo evidence to show that the finite sample bias our estimator is small.

Suggested Citation

Hogan, Vincent and Rigobon, Roberto, Using Heteroscedasticity to Estimate the Returns to Education (September 2002). NBER Working Paper No. w9145. Available at SSRN: https://ssrn.com/abstract=330982

Vincent Hogan

National University of Ireland - University College Dublin ( email )

Dublin 4
Ireland
+353 1 716 8300 (Phone)
+353 1 283 0068 (Fax)

University of Warwick

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Roberto Rigobon (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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