Ability school is easier in these cases schooling is

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Ability – School is easier In these cases, schooling is not the cause of higher earnings, it is just correlated with higher earnings
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      Years of Schooling Dollars S 2 S 1 w 2 w 1 2 1 True return to schooling Overestimate the return to schooling Need to control for ability difficult to find the right “X”s
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    Always useful to think about the “ideal” test Experiment Randomly assign people to HS group and College group Measure earnings difference Why it works: Remove self-selection ability not correlated with educational attainment Problem: Perhaps this is unfair…
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       Ashenfelter and Krueger (1994) Compare Twins 10-16% return to schooling Ashenfelter and Zimmerman (1997) Compare Fathers and Sons 5% return to schooling S b w ability b S b w w Δ = Δ + + = 1 2 1
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     Assumption – Fathers and sons, twins have same innate ability and family background any differences in earnings caused by differences in education Is this realistic? Why did they get different levels of education?
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    Event that mimics random assignment to education for a particular group Angrist & Krueger (1992) Angrist & Krueger (1991)
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    Vietnam Draft lottery – selected men for military service based on birth date July 9, 1951 first to be drafted July 7, 1951 last to be drafted Draft avoidance caused some to seek higher education **Key: This was random b/c incentive determined by lottery Finding: Return to schooling about 7%; in 1980s earnings 15% lower for veteran Who is this return for?
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    “Quarter of Birth” + Compulsory Schooling Laws Everyone is allowed to drop out at the same age (varies by state) Children start school at different ages Sept.-Nov. births are young “barely 5”, Dec- Feb. births “almost 6” Young starters must complete more schooling **Key: Must assume QOB is random (not correlated with ability) Find a + return to schooling. Problems?
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  
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       Implicit school makes worker more productive increases “human capital” Recall w = VMP What if schooling does not increase human capital, but rather reveals human capital?
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    Ex: Two types of workers (HS grads): Low Productivity: PV of Lifetime Prod. = 200,000 (50%) High Productivity: PV of Lifetime Prod. = 300,000 (50%)
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