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in wage inequality for Yit3 that is not found in Yit2are found in the distribution of the unobservable. As a result, an increase in wage inequality among male workers had occurred due to unobserved (ability) and observed dimensions of skill (education and experience). In comparison to the observed dimensions of skill, the increase in unobserved components of skill attributed mostly to an increase in wage inequality among male workers because of the growing demand for skilled workers in the labor market. My study contributes to the papers by Card and Juhn, C., Murphy, K., & Pierce, Bby using 2011 data from the NLSY 97 to examine major changes in the return to education recently compared to the results from previous research. In this study, I evaluate the relationship between years of schooling and weekly earnings using Mincer earnings equation. Card (2001) and Juhn, C., Murphy, K., & Pierce, B. (1993) implicitly looked at ability bias. I use the IV method to examine how biases such as ability affect the relationship between years of schooling and weekly earnings by using parental
education as instruments to obtain corrected results while eliminating OVB. Along with IV, I use the family fixed effect approach to eliminate OVB. Card (2001) and Card (1993)showed that family background such as parental education affects children’s investment towards schooling. Card (1993) showed that parental education was used as instrumental variables because parental education influenced the decision they made about their children’s years of schooling. Card (1993) and Card (2001) found that parental education is correlated with children’s education but parents can influence their children’s ability. The difference between my paper and previous researches is I include family fixed effect model to verify if the IV estimation on returns to education is similar to the family fixed effect estimation on return to education. I also explore returns to education by gender to see if women have higher returns to education than men. To ensure the instruments are uncorrelated with the error term, I include the control variable ASVAB score in the study. Previous research argued that parental education is correlated with children’s ability. However, the ASVAB score explicitly controls for children’s ability, thus parental education will influence children’s education for the reasons that are not related to ability.This helps to examine the direct causal relationship between education and weekly earnings while controlling for ability.Section 3: HypothesesIn this paper, I start by examining the main question, which is exploring returns to education. To do so, I test the following hypotheses:H1a): Additional years of schooling will be positively significantly related to weekly earnings for both men and women.