Life-cycle bias and the returns to schooling in current and lifetime earnings
Working paper
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Date
2011Metadata
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- Discussion Papers [1004]
Abstract
Abstract:
This paper uses a unique data set with nearly career-long earnings histories to provide evidence on
the returns to schooling in current and lifetime earnings. We use these results to assess the
importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime
earnings. To account for the endogeneity of schooling, we apply three commonly used identification
strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from
assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in
research on the economic returns to schooling, and discuss possible remedies.
Description
The project is
part of the research activities at the ESOP center at the Department of Economics, University of
Oslo. ESOP is supported by the Research Council of Norway. An earlier version of this paper was
circulated as NHH Discussion Paper 2011/4, dated February 29, 2011.