October 2006

IZA DP No. 2407: Estimating the Return to Endogenous Schooling Decisions for Australian Workers via Conditional Second Moments

published as 'Estimating the Return to Endogenous Schooling Decisions via Conditional Second Moments' in : Journal of Human Resources, 2009, 44 (4), 1047 - 1065

This paper employs conditional second moments to identify the impact of education in wage regressions where education is treated as endogenous. This approach avoids the use of instrumental variables in a setting where instruments are frequently not available. We employ this methodology to estimate the returns to schooling for a sample of Australian workers. We find that accounting for the endogeneity of education in this manner increases the estimated return to education from 6 percent to 10 percent.