Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: This paper uses data collected in 2000 to first estimate OLS and ordered probit models to measure correlation between family background and workers’ education. Then, human capital earnings functions are estimated to examine to what extent family background accounts for observed correlation between workers’ education and earnings. Subsequently, it estimates returns to education with education treated as endogenous. Having well-educated parents is associated with greater educational attainment and earnings. Returns to education decline slightly when parents’ education controls are in the earnings function. Instrumental variable estimation or self-selection correction suggests that estimates of returns to education may be larger than conventional estimates suggest.

Keywords: Earnings function; return to education; instrumental variables

JEL-codes: I21; J24; J31; O15

30 pages, June 20, 2002

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