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Individual Heterogeneity in the Returns to Schooling: Instrumental Variables Quantile Regression Using Twins Data
Articles and Chapters
  • Omar Arias, Inter-American Development Bank
  • Kevin F Hallock, Cornell University
  • Walter Sosa-Escudero, Universidad Nacional de la Plata
Publication Date
3-1-2001
Abstract

Considerable effort has been exercised in estimating mean returns to education while carefully considering biases arising from unmeasured ability and measurement error. Recent work has investigated whether there are variations from the “mean” return to education across the population with mixed results. We use an instrumental variables estimator for quantile regression on a sample of twins to estimate an entire family of returns to education at different quantiles of the conditional distribution of wages while addressing simultaneity and measurement error biases. We test whether there is individual heterogeneity in returns to education and find that: more able individuals obtain more schooling and that higher ability individuals (those further to the right in the conditional distribution of wages) have higher returns to schooling consistent with a non-trivial interaction between schooling and unobserved abilities in the generation of earnings. The estimated returns are never lower than 9 percent and can be as high as 13 percent at the top of the conditional distribution of wages but they vary significantly only along the lower to middle quantiles. Our findings may have meaningful implications for the design of educational policies.

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Suggested Citation
Arias, O., Hallock, K. F. & Sosa-Escudero, W. (2001). Individual heterogeneity in the returns to schooling: Instrumental variables quantile regression using twins data. Retrieved [insert date] from Cornell University, ILR School site:
http://digitalcommons.ilr.cornell.edu/articles/201

Required Publisher Statement
Copyright by Springer Verlag. Final article published as Arias, O., Hallock, K. F. & Sosa-Escudero, W. (2001). Individual heterogeneity in the returns to schooling: Instrumental variables quantile regression using twins data. Empirical Economics 26(1), 7-40.

Citation Information
Omar Arias, Kevin F Hallock and Walter Sosa-Escudero. "Individual Heterogeneity in the Returns to Schooling: Instrumental Variables Quantile Regression Using Twins Data" (2001)
Available at: http://works.bepress.com/kevin_hallock/15/