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Hidden schooling: endogenous measurement error and bias in education and labor market experience

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  • Kendall J. Kennedy

    (Mississippi State University)

Abstract

Since 1980, 25% of US students repeated a grade during their academic career. Despite this, few economists account for retention when measuring education and experience, causing bias when retention is correlated with other regressors of interest. Rising minimum dropout ages since 1960 have increased retention, causing positive bias in 2SLS estimates of the returns to education. Retention also causes endogenous measurement error in potential experience. In addition to distorting experience-wage profiles across countries, this endogenous measurement error causes the residual Black-White wage gap and the returns to a high school diploma to be overstated. Proxying for age instead of potential experience reduces this bias, suggesting age, not potential experience, should be a standard control variable.

Suggested Citation

  • Kendall J. Kennedy, 2023. "Hidden schooling: endogenous measurement error and bias in education and labor market experience," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(4), pages 2691-2723, October.
    • Handle: RePEc:spr:jopoec:v:36:y:2023:i:4:d:10.1007_s00148-022-00918-w
    DOI: 10.1007/s00148-022-00918-w
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    More about this item

    Keywords

    Grade retention; Returns to education; Labor market experience; Measurement error;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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