College education and wages in the U.K.: estimating conditional average structural functions in nonadditive models with binary endogenous variables
Recent studies debate how the unobserved dependence between the monetary return to college education and selection into college can be characterised. This paper examines this question using British data. We develop a semiparametric local instrumental variables estimator for identified features of a flexible correlated random coefficient model. These identified features are directly related to the marginal and average treatment effect in policy evaluation. Our results indicate that returns to college systematically differ between actual college graduates and actual college non-graduates. They are on average higher for college graduates and positively related to selection into college for 96% of the individuals. The dependence between selection into college and returns to college education is strongest for individuals with low math test scores at the age of 7, individuals with less educated mothers, and for working-class individuals.
KeywordsReturns to college education Correlated random coefficient model Local instrumental variables estimation
JEL ClassificationC14 C31 J31
This paper is based on the second chapter of my Ph.D. thesis, which I defended in July 2006 at the University of Mannheim. I am especially grateful to Erich Battistin, Richard Blundell, Pedro Carneiro, Andrew Chesher, Johannes Gernandt, Stefan Hoderlein, Enno Mammen, Melanie Schienle, and Edward Vytlacil for stimulating discussions and helpful comments on earlier versions of this paper. Moreover, I would like to thank Richard Blundell, Lorraine Dearden, as well as Leslie McGranahan for sharing their data. I would like to thank UCL for its hospitality during the academic year 2003/4, the European Commission for financial support through the Marie Curie program, and the Deutsche Forschungsgemeinschaft for financial support through SFB/TR 15. Furthermore, I would like to thank the audiences of various conference and seminar presentations for valuable comments. Finally, I would like to thank the three referees and the editor for their detailed comments and suggestions.
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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