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Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity

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  • Saniter, Nils

    (Federal Ministry for Economic Affairs and Energy (BMWi))

Abstract

In this paper I investigate the causal returns to education for different educational groups in Germany by employing a new method by Klein and Vella (2010) that bases identification on the presence of conditional heteroskedasticity. Compared to IV methods, key advantages of this approach are unbiased estimates in the absence of instruments and parameter interpretation that is not bounded to local average treatment effects. Using data from the German Socio-Economic Panel Study (SOEP) I find that the causal return to education is 8.5% for the entire sample, 2.3% for graduates from the basic school track and 11% for graduates from a higher school track. Across these groups the endogeneity bias in simple OLS regressions varies significantly. This confirms recent evidence in the literature on Germany. Various robustness checks support the findings.

Suggested Citation

  • Saniter, Nils, 2012. "Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity," IZA Discussion Papers 6813, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6813
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    2. Shushanik Margaryan & Nils Saniter & Mathias Schumann & Thomas Siedler, 2022. "Do Internships Pay Off? The Effects of Student Internships on Earnings," Journal of Human Resources, University of Wisconsin Press, vol. 57(4), pages 1242-1275.
    3. Balestra, Simone & Backes-Gellner, Uschi, 2017. "Heterogeneous returns to education over the wage distribution: Who profits the most?," Labour Economics, Elsevier, vol. 44(C), pages 89-105.
    4. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany – Heterogeneous Eff ects and Skill Formation," Ruhr Economic Papers 0446, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," SOEPpapers on Multidisciplinary Panel Data Research 598, DIW Berlin, The German Socio-Economic Panel (SOEP).
    6. Saniter, Nils & Siedler, Thomas, 2014. "Door Opener or Waste of Time? The Effects of Student Internships on Labor Market Outcomes," IZA Discussion Papers 8141, Institute of Labor Economics (IZA).
    7. Postepska, Agnieszka, 2017. "Ethnic Capital and Intergenerational Transmission of Educational Attainment," IZA Discussion Papers 10851, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    return to education; wage equation; control function approach; second moment exclusion restriction;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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