Compulsory Education and the Benefits of Schooling
Stephens, Melvin, and Dou-Yan Yang. 2014. "Compulsory Education and the Benefits of Schooling." American Economic Review, 104(6): 1777-92.
Causal estimates of the benefits of increased schooling using U.S. state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts. Differential changes across states during this period, such as relative school quality improvements, suggest that this assumption may fail to hold. Across a number of outcomes including wages, unemployment, and divorce, we find that statistically significant causal estimates become insignificant and, in many instances, wrong-signed when allowing year of birth effects to vary across regions.