Discussion Papers,
Statistics Norway, Research Department

Abstract: This paper uses a unique data set with nearly career-long earnings histories to provide evidence on the returns to schooling in current and lifetime earnings. We use these results to assess the importance of life-cycle bias in earnings regressions using current earnings as a proxy for lifetime earnings. To account for the endogeneity of schooling, we apply three commonly used identification strategies. Our estimates demonstrate a strong life-cycle bias, often exceeding the bias from assuming that schooling is exogenous. We further explore the problems caused by life-cycle bias in research on the economic returns to schooling, and discuss possible remedies.

Keywords: Returns to schooling; life-cycle bias; lifetime earnings; current earnings; errors-in-variables model

JEL-codes: J24; J31 October 2011

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