Bhuller, Manudeep Mogstad, Magne Salvanes, Kjell G.
Year of Publication:
Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5788
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.
returns to schooling life-cycle bias lifetime earnings current earnings errors-in-variables model