Working Paper: NBER ID: w10081
Authors: Reuben Gronau
Abstract: The paper discusses Zvi Griliches' contribution to the estimation of the earning function. The topic was the central theme of Griliches' research agenda during the 70s. Griliches played a major role in the ability- schooling controversy of the time. He was instrumental in repelling the attack of the revisionists' on the Theory of Human Capital, and the claim that the schooling effect in the earning function is merely an artifact of the true ability' and family background' effects. Griliches lacked at the time the proper data to prove unequivocally that the ability bias plays only a minor role in the estimation of the rate of return to schooling. He was, however, able to show that the seemingly foolproof evidence of his opponents suffers from serious biases due to the endogeneity and the measurement errors in the schooling variable. His assertion that the standard OLS estimator is biased downward, rather than upward, has been shown true by future research.
Keywords: human capital; earning function; education; ability bias
JEL Codes: B3; C4; C5; I2; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Measurement errors in schooling (I21) | Downward bias in OLS estimator for return to schooling (C20) |
| Endogeneity of schooling (I21) | Underestimation of true effect of schooling on earnings (J24) |
| Ability bias (J71) | Estimation of rate of return to schooling (I26) |
| Twin and sibling data (J12) | Isolation of effects of schooling from ability (I21) |
| Ability (G53) | Impact on earnings (F69) |
| Family background and genetic factors (J12) | Returns to education (I26) |