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Does Family Background Matter? - Returns to Education and Family Characteristics in Germany

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  • Gödde, Isabel

    (Department of Economics, University of Mannheim)

  • Schnabel, Reinhold

    (Fachb. Wirtschaftswiss., Universität-Gesamthochschule Essen)

Abstract

This paper examines the impact of family background on wages and returns to education. Using data from the GSOEP, we show that family background matters in the determination of wages. Moreover, returns to education appear to be heterogeneous with family background accounting for part of this heterogeneity. Estimated returns to education are higher for individuals from families with lower education levels. However, a simple regression analysis suffers from serious endogeneity problems. The construction of a sibling sample allows to control for unobserved characteristics that are shared by family members. Using a family fixed-effects estimation we attempt to reduce the endogeneity bias. Our results suggest that the conventional estimates overstate the returns to education. Moreover, family background accounts or a large part of the variation in wages in the sibling sample.

Suggested Citation

  • Gödde, Isabel & Schnabel, Reinhold, 1998. "Does Family Background Matter? - Returns to Education and Family Characteristics in Germany," Sonderforschungsbereich 504 Publications 98-60, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:98-60
    Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. We would like to thank Kenneth Chay for very helpful advice. Moreover, we would like to thank Axel Börsch-Supan and the participants of the Brown Bag Seminar at the University of Mannheim for comments.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp98-60.pdf
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    References listed on IDEAS

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    1. Katharine G. Abraham & Susan Houseman, 1995. "Earnings Inequality in Germany," NBER Chapters, in: Differences and Changes in Wage Structures, pages 371-404, National Bureau of Economic Research, Inc.
    2. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-308, May.
    3. Altonji, Joseph G & Dunn, Thomas A, 1996. "The Effects of Family Characteristics on the Return to Education," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 692-704, November.
    4. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 253-284.
    5. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
    6. Freeman, Richard B. & Katz, Lawrence F. (ed.), 1995. "Differences and Changes in Wage Structures," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226261607, July.
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    Cited by:

    1. Yuxin Li & Karen Mumford, "undated". "Aspirations, Expectations and Education Outcomes for Children in Britain: Considering Relative Measures of Family Efficiency," Discussion Papers 09/26, Department of Economics, University of York.
    2. Blaess, Virginie, 2005. "Siblings and Educational Attainment in West Germany," Discussion Papers 2005,001E, University of Erfurt, Faculty of Economics, Law and Social Sciences.
    3. Dumauli, Magdalena Triasih, 2015. "Estimate of the private return on education in Indonesia: Evidence from sibling data," International Journal of Educational Development, Elsevier, vol. 42(C), pages 14-24.
    4. Beatriz Vargas Urrutia, 2013. "Retornos a la educación y migración rural-urbana en Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, December.

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