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Luigi Pistaferri, Consumption Inequality and Family Labor Supply

Estimating the returns to college quality with multiple proxies for quality

Publication Abstract

Black, D.A., and Jeffrey A. Smith. 2006. "Estimating the returns to college quality with multiple proxies for quality." Journal of Labor Economics, 24(3): 701-728.

Existing studies of the effects of college quality on wages typically rely on a single proxy variable for college quality. This study questions the wisdom of using a single proxy given that it likely contains substantial measurement error. We consider four econometric approaches to the problem that involve the use of multiple proxies for college quality: factor analysis, instruments variables, a method recently proposed by Lubotsky and Wittenberg, and a GMM estimator. Our estimates suggest that the existing literature understates the wage effects of college quality and illustrate the value of using multiple proxies in this and other similar contexts.

DOI:10.1086/505067 (Full Text)

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