Compulsory Schooling and Returns to Education: A Re-Examination

van Huellen, Sophie; Qin, Duo

Abstract

This paper re-examines the instrumental variable (IV) approach to estimating returns to education by use of compulsory school law (CSL) in the US. We show that the IV-approach amounts to a change in model specification by changing the causal status of the variable of interest. From this perspective, the IV-OLS (ordinary least square) choice becomes a model selection issue between non-nested models and is hence testable using cross validation methods. It also enables us to unravel several logic flaws in the conceptualisation of IV-based models. Using the causal chain model specification approach, we overcome these flaws by carefully distinguishing returns to education from the treatment effect of CSL. We find relatively robust estimates for the first effect, while estimates for the second effect are hindered by measurement errors in the CSL indicators. We find reassurance of our approach from fundamental theories in statistical learning.

Citation

van Huellen, S., & Qin, D. (2019). Compulsory Schooling and Returns to Education: A Re-Examination. Econometrics, 7(3), Article 36. https://doi.org/10.3390/econometrics7030036

• Journal Article Type: Article
• Acceptance Date: Aug 29, 2019
• Publication Date: Sep 2, 2019
• Deposit Date: Sep 4, 2019
• Publicly Available Date: Sep 4, 2019
• Journal: Econometrics
• Electronic ISSN: 2225-1146
• Publisher: MDPI
• Peer Reviewed: Peer Reviewed
• Volume: 7
• Issue: 3
• Article Number: 36
• DOI: https://doi.org/10.3390/econometrics7030036
• Keywords: instrumental variables; randomisation; research design; average return to education