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Additive kernel estimates of returns to schooling

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Abstract

In this paper, we employ a partially linear nonparametric additive regression estimator, with recent U.S. Current Population Survey data, to analyze returns to schooling. Similar to previous research, we find that blacks and Hispanics have higher rates of return on average. However, for married males, while non-Hispanic whites have lower returns on average, they typically possess the highest returns in the sample. For females, we are able to show that Hispanics have uniformly higher returns over non-Hispanic whites for the full sample. When we restrict our analysis to females whose highest level of education is a high school diploma, we find average, but no longer uniformly higher returns. However, these uniformly higher returns resurface for college graduates.

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Notes

  1. For completeness, we also obtained empirical results with an additive local-linear estimator which are available by request. Most of the results are similar, but we do find some differences which we report in Sect. 5.2.4.

  2. Non-Hispanic whites will be referred to as whites hereafter.

  3. These authors also use a cross-validation procedure which could possibly lead to a poor stochastic bandwidth choice.

  4. See Henderson and Parmeter (2014) or Li and Racine (2007) for the general case.

  5. The second step can alternatively be estimated using local-linear least squares regression (see Martins-Filho and Yang 2007).

  6. Note that the aforementioned papers are primarily concerned with sample selection problems.

  7. We choose to solely focus on the returns to schooling variable: \(\partial \ln \left( \hbox {earnings}\right) /\partial \hbox {schooling}\). The other estimates, such as for the control variables, are in line with the literature and are available upon request.

  8. We also performed specification tests for our preferred semiparametric model versus a nonparametric alternative and failed to reject the null that the semiparametric model was correctly specified in 10 of the 12 cases—the exceptions being white married males and single black males.

  9. In the stochastic dominance literature, it is common to use the cutoff value of one-half (\(0.50\)) for \(p\)-values (e.g., Eren and Henderson 2008).

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Authors and Affiliations

  1. Department of Economics, University of Connecticut, Storrs, CT, 06269-1063, USA

    Deniz Ozabaci

  2. Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, AL, 35487-0224, USA

    Daniel J. Henderson

Authors
  1. Deniz Ozabaci
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  2. Daniel J. Henderson
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Correspondence to Daniel J. Henderson.

Additional information

The authors would like to thank two anonymous referees, Subal Kumbhakar, Essie Maasoumi, Chris Parmeter, Sol Polachek and Le Wang for useful comments and suggestions as well as participants in presentations made at the State University of New York at Binghamton, Syracuse University, the University of Alabama and at the 2011 Midwest Econometric Group (University of Chicago). The R code used in this paper is available from the authors upon request.

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Ozabaci, D., Henderson, D.J. Additive kernel estimates of returns to schooling. Empir Econ 48, 227–251 (2015). https://doi.org/10.1007/s00181-014-0877-8

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