IDEAS home Printed from https://ideas.repec.org/a/wly/japmet/v26y2011i4p613-640.html
   My bibliography  Save this article

Estimating the returns to schooling: a likelihood approach based on normal mixtures

Author

Listed:
  • John K. Dagsvik
  • TorbjØrn HÆgeland
  • Arvid Raknerud

Abstract

In this paper we develop likelihood based methods for statistical inference in a joint system of equations for the choice of length of schooling and earnings. The model for schooling choice is assumed to be an ordered probit model, whereas the earnings equation contains variables that are flexible transformations of schooling and experience, with corresponding coefficients that are allowed to be heterogeneous across individuals. Under the assumption that the distribution of the random terms of the model can be expressed as a particular finite mixture of multinormal distributions, we show that the joint probability distribution for schooling and earnings can be expressed on closed form. In an application of our method on Norwegian data, we find that the mixed Gaussian model offers a substantial improvement in fit to the (heavy-tailed) empirical distribution of log-earnings compared to a multinormal benchmark model.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • John K. Dagsvik & TorbjØrn HÆgeland & Arvid Raknerud, 2011. "Estimating the returns to schooling: a likelihood approach based on normal mixtures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(4), pages 613-640, June.
    • Handle: RePEc:wly:japmet:v:26:y:2011:i:4:p:613-640
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 7-36, October.
    2. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    3. Belzil, Christian & Hansen, Jorgen, 2007. "A structural analysis of the correlated random coefficient wage regression model," Journal of Econometrics, Elsevier, vol. 140(2), pages 827-848, October.
    4. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
    5. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, May.
    6. Belzil, Christian, 2007. "The return to schooling in structural dynamic models: a survey," European Economic Review, Elsevier, vol. 51(5), pages 1059-1105, July.
    7. Wooldridge, Jeffrey M., 2003. "Further results on instrumental variables estimation of average treatment effects in the correlated random coefficient model," Economics Letters, Elsevier, vol. 79(2), pages 185-191, May.
    8. Carneiro, Pedro & Hansen, Karsten T. & Heckman, James J., 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," IZA Discussion Papers 767, Institute of Labor Economics (IZA).
    9. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "2001 Lawrence R. Klein Lecture Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 361-422, May.
    10. Torbjørn Haegeland & Tor Jakob Klette & Kjell G. Salvanes, 1999. "Declining Returns to Education in Norway? Comparing Estimates across Cohorts, Sectors and over Time," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 555-576, December.
    11. Gronau, Reuben, 1974. "Wage Comparisons-A Selectivity Bias," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1119-1143, Nov.-Dec..
    12. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    13. Christian Belzil & Jörgen Hansen, 2002. "Unobserved Ability and the Return to Schooling," Econometrica, Econometric Society, vol. 70(5), pages 2075-2091, September.
    14. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    15. repec:bla:scandj:v:101:y:1999:i:4:p:555-76 is not listed on IDEAS
    16. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
    17. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    18. Garen, John, 1984. "The Returns to Schooling: A Selectivity Bias Approach with a Continuous Choice Variable," Econometrica, Econometric Society, vol. 52(5), pages 1199-1218, September.
    19. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
    20. Wooldridge, Jeffrey M., 1997. "On two stage least squares estimation of the average treatment effect in a random coefficient model," Economics Letters, Elsevier, vol. 56(2), pages 129-133, October.
    21. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    22. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    23. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cappelen, Ådne & Raknerud, Arvid & Rybalka, Marina, 2012. "The effects of R&D tax credits on patenting and innovations," Research Policy, Elsevier, vol. 41(2), pages 334-345.
    2. Bratsberg, Bernt & Raaum, Oddbjørn & Røed, Knut, 2011. "Educating Children of Immigrants: Closing the Gap in Norwegian Schools," IZA Discussion Papers 6138, Institute of Labor Economics (IZA).
    3. John K. Dagsvik & Zhiyang Jia & Tom Kornstad & Thor O. Thoresen, 2014. "Theoretical And Practical Arguments For Modeling Labor Supply As A Choice Among Latent Jobs," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 134-151, February.
    4. Arvid Raknerud & Mirjam van Praag, 2014. "The entrepreneurial earnings puzzle. Evidence from matched person-firm data," Discussion Papers 789, Statistics Norway, Research Department.
    5. Adam Nowak & Patrick Smith, 2015. "Textual Analysis in Real Estate," Working Papers 15-34, Department of Economics, West Virginia University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John K. Dagsvik & Torbjørn Hægeland & Arvid Raknerud, 2006. "Estimation of Earnings- and Schooling Choice Relations: A Likelihood Approach," Discussion Papers 486, Statistics Norway, Research Department.
    2. Aakvik, Arild & Salvanes, Kjell G. & Vaage, Kjell, 2010. "Measuring heterogeneity in the returns to education using an education reform," European Economic Review, Elsevier, vol. 54(4), pages 483-500, May.
    3. Christian Belzil, 2008. "Testing the Specification of the Mincer Wage Equation," Annals of Economics and Statistics, GENES, issue 91-92, pages 427-451.
    4. Belzil, Christian, 2007. "The return to schooling in structural dynamic models: a survey," European Economic Review, Elsevier, vol. 51(5), pages 1059-1105, July.
    5. Heckman, James J. & Urzúa, Sergio, 2010. "Comparing IV with structural models: What simple IV can and cannot identify," Journal of Econometrics, Elsevier, vol. 156(1), pages 27-37, May.
    6. Heckman, James J. & Navarro, Salvador, 2007. "Dynamic discrete choice and dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 136(2), pages 341-396, February.
    7. Ge, Suqin, 2013. "Estimating the returns to schooling: Implications from a dynamic discrete choice model," Labour Economics, Elsevier, vol. 20(C), pages 92-105.
    8. Belzil, Christian & Hansen, Jorgen, 2007. "A structural analysis of the correlated random coefficient wage regression model," Journal of Econometrics, Elsevier, vol. 140(2), pages 827-848, October.
    9. Aakvik, Arild & Salvanes, Kjell G. & Vaage, Kjell, 2003. "Measuring Heterogeneity in the Returns to Education in Norway Using Educational Reforms," IZA Discussion Papers 815, Institute of Labor Economics (IZA).
    10. Zamarro, Gema, 2010. "Accounting for heterogeneous returns in sequential schooling decisions," Journal of Econometrics, Elsevier, vol. 156(2), pages 260-276, June.
    11. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
    12. Belzil, Christian & Hansen, Jorgen, 2007. "A structural analysis of the correlated random coefficient wage regression model," Journal of Econometrics, Elsevier, vol. 140(2), pages 827-848, October.
    13. Belzil, Christian & Hansen, Jörgen, 2005. "A Structural Analysis of the Correlated Random Coefficient Wage Regression Model with an Application to the OLS-IV Puzzle," IZA Discussion Papers 1585, Institute of Labor Economics (IZA).
    14. Meghir, Costas & Rivkin, Steven, 2011. "Econometric Methods for Research in Education," Handbook of the Economics of Education, in: Erik Hanushek & Stephen Machin & Ludger Woessmann (ed.), Handbook of the Economics of Education, edition 1, volume 3, chapter 1, pages 1-87, Elsevier.
    15. Heckman, James J. & Humphries, John Eric & Veramendi, Gregory, 2016. "Dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 191(2), pages 276-292.
    16. Keane, Michael P. & Todd, Petra E. & Wolpin, Kenneth I., 2011. "The Structural Estimation of Behavioral Models: Discrete Choice Dynamic Programming Methods and Applications," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 4, pages 331-461, Elsevier.
    17. Binelli, Chiara & Menezes-Filho, Naercio, 2019. "Why Brazil fell behind in college education?," Economics of Education Review, Elsevier, vol. 72(C), pages 80-106.
    18. Jaap Abbring & James Heckman, 2008. "Dynamic policy analysis," CeMMAP working papers CWP05/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    19. Stacey Chen, 2003. "Does COllege Attendance Increase Wage Volatility," Discussion Papers 03-01, University at Albany, SUNY, Department of Economics.
    20. Lewbel, Arthur, 2007. "Endogenous selection or treatment model estimation," Journal of Econometrics, Elsevier, vol. 141(2), pages 777-806, December.

    More about this item

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Estimating the returns to schooling: a likelihood approach based on normal mixtures (Journal of Applied Econometrics 2011) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:japmet:v:26:y:2011:i:4:p:613-640. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0883-7252/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.