Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 806: The Co-twin Methodology and Returns to Schooling – Testing a Critical Assumption

Örjan Sandewall (), David Cesarini () and Magnus Johannesson
Additional contact information
Örjan Sandewall: London School of Economics
David Cesarini: Department of Economics, Postal: Massaschusetts Institute of Technology
Magnus Johannesson: Department of Economics, Postal: Stockholm School of Economics

Abstract: Twins-based estimates of the return to schooling feature prominently in the labor economics literature. The validity of such estimates hinges critically on the assumption that within-pair variation in schooling is explained by factors which are unrelated to wage earning ability. This paper develops a framework for testing this assumption, and finds, using a unique dataset of monozygotic twins, strong evidence against it. Di¤erences in adolescent IQ test scores predict within-pair variation in educational attainment, and including IQ in the wage equation causes within-pair point estimates for the returns to schooling to decline significantly. Our results thus cast doubt on the validity of estimates derived from the co-twin literature.

Keywords: Returns to Schooling; Twins; Equal Ability Assumption

JEL-codes: I21; J24

37 pages, August 24, 2009

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