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Endogeneity of schooling in the wage function

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  • Maluccio, John A.

Abstract

This paper evaluates the effect (in terms of private returns) of investment in education on wages in the rural Philippines. Statistical endogeneity of education in the wage function may result from (1) unobserved determinants of education that also influence wages and/or (2) measurement error. Panel data are used that provide relevant instruments, particularly distance to schools and measures of household resources, at the time of schooling, to endogenize investments in education while estimating wage functions. The estimated return to education increases more than 60 percent when education is endogenized. This increase is robust to the inclusion of a measure of health, models of selection into the sample, and measurement error. The paper suggests how heterogeneous returns to education might account for the magnitude of the downward bias in returns to schooling.

Suggested Citation

  • Maluccio, John A., 1998. "Endogeneity of schooling in the wage function," FCND discussion papers 54, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:fcnddp:54
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    References listed on IDEAS

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    1. Jere R. Behrman, 2019. "Human capital and social mobility in low- and middle-income countries," WIDER Working Paper Series wp-2019-85, World Institute for Development Economic Research (UNU-WIDER).
    2. Esther Duflo, 2001. "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment," American Economic Review, American Economic Association, vol. 91(4), pages 795-813, September.
    3. Uwaifo Oyelere, Ruth, 2010. "Africa's education enigma? The Nigerian story," Journal of Development Economics, Elsevier, vol. 91(1), pages 128-139, January.
    4. Sonia Bhalotra & Claudia Sanhueza, 2004. "Parametric and Semi-parametric Estimations of the Return to Schooling in South Africa," Econometric Society 2004 Latin American Meetings 294, Econometric Society.
    5. Jose Ramon Albert & Soya Mori & Celia Reyes & Aubrey D. Tabuga & Tatsufumi Yamagata, 2015. "Income Disparity among Persons with Disabilities, Assessed by Education and Sex: Accentuated Gender Difference Found in Metro Manila, the Philippines," The Developing Economies, Institute of Developing Economies, vol. 53(4), pages 289-302, December.
    6. Alan B. Krueger & Mikael Lindahl, 1998. "Education for Growth in Sweden and the World," Working Papers 790, Princeton University, Department of Economics, Industrial Relations Section..
    7. Harry Patrinos & Chris Sakellariou, 2005. "Schooling and Labor Market Impacts of a Natural Policy Experiment," LABOUR, CEIS, vol. 19(4), pages 705-719, December.
    8. Emek Basker, 2007. "When Good Instruments Go Bad," Working Papers 0706, Department of Economics, University of Missouri.
    9. Uwaifo, Ruth, 2006. "Africa's Education Enigma? The Nigerian story," 2006 Annual meeting, July 23-26, Long Beach, CA 21254, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Lawrence Dacuycuy, 2012. "Parametric and semiparametric model representations of the conditional mean of wages: do they make a difference against nonparametric ones?," Applied Economics, Taylor & Francis Journals, vol. 44(13), pages 1673-1684, May.
    11. Deng, Binbin, 2010. "Schooling and Wage Revisited: Does Higher IQ Really Give You Higher Income?," MPRA Paper 23206, University Library of Munich, Germany.
    12. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
    13. Chris Sakellariou, 2006. "Education policy reform, local average treatment effect and returns to schooling from instrumental variables in the Philippines," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 473-481.
    14. Maggio, Giuseppe & Sitko, Nicholas, 2019. "Knowing is half the battle: Seasonal forecasts, adaptive cropping systems, and the mediating role of private markets in Zambia," Food Policy, Elsevier, vol. 89(C).
    15. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.

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