Abstract
This article takes a first look at the distribution of returns to education for people with disabilities, a particularly disadvantaged group whose labor market performances have not been well studied or documented. Using a nonparametric approach, we uncover significant heterogeneity in the returns to education for these workers, which is drastically masked by conventional parametric methods. Based on these estimates, we construct the Sharpe ratio of human capital investment (taking into account its substantial risk), and our results corroborate the claimed importance of human capital in improving these workers’ wages. Our stochastic dominance tests show that the returns to education for workers with disabilities, as a group, may have been affected more adversely in the most recent recession, relative to their non-disabled counterparts.
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Notes
This figure varies with data sources, operating definitions of disability, and estimation methodologies.
In short, LLLS performs weighted least-squares regressions at a point x with weights determined by a kernel function and bandwidth vector. Specifically, more weight is given to observations in the neighborhood of x. This is performed over the range of x and then the unknown function is estimated by connecting the point estimates. Some of the benefits of LLLS are that it requires no assumptions on the underlying functional form and allows for heterogeneity in the partial effects. Further, if indeed the true functional form is linear, the LLLS estimator nests the OLS estimator when the bandwidth is very large.
A useful feature of the LSCV procedure, among others, is its ability to detect whether a continuous variable enters the function linearly in the LLLS case (Hall et al. 2007). A very large bandwidth (h →∞) (which implies K(⋅) → K(0), a constant) implies each observation is given equal weight in estimation, which makes the original minimization problem an OLS problem over the whole support.
Available for download at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.
Source: Prevalence of Disability and Disabiity Type Among Adults – United States, 2013 Weekly July 31, 2015. https://www.cdc.gov/mmwr/preview/mmwrhtml/mm6429a2.htm.
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Acknowledgements
The authors would like to acknowledge the excellent research assistance of Jia Gao. The contents do not necessarily represent the policy of the Department of Education and you should not assume endorsement by the federal government (Edgar, 75.620 (b)). The authors are solely responsible for any errors or omissions.
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Funding for this paper was made possible by the Rehabilitation Research and Training Center on Employment Policy and Measurement, which is funded by the U.S. Department of Education, National Institute for Disability and Rehabilitation Research (NIDRR), under cooperative agreement H133B100030.
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Henderson, D.J., Houtenville, A. & Wang, L. The Distribution of Returns to Education for People with Disabilities. J Labor Res 38, 261–282 (2017). https://doi.org/10.1007/s12122-017-9245-8
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DOI: https://doi.org/10.1007/s12122-017-9245-8