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Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings

Author

Listed:
  • Bhuller, Manudeep

    (University of Oslo)

  • Mogstad, Magne

    (University of Chicago)

  • Salvanes, Kjell G.

    (Norwegian School of Economics)

Abstract
This paper uses a unique data set with nearly career-long earnings histories to provide evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.

Suggested Citation

  • Bhuller, Manudeep & Mogstad, Magne & Salvanes, Kjell G., 2011. "Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings," IZA Discussion Papers 5788, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5788
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    returns to schooling; life-cycle bias; lifetime earnings; current earnings; errors-in-variables model;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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