The Roles of Education, Skill and Parental Income in Determining Wages
Isaac C. Rischall (CILN)February 1999
Abstract
This study attempts to examine how much of the correlation in incomes across generations can be explained by education and skill. I find two different answers to this question depending on how I instrument for years of schooling. Using quarter of birth and proximity to a local college as instruments, I find high returns to schooling, low returns to skill, and most of the intergenerational mobility coefficient explained. However, these instruments are poorly correlated with years of education. Thus, the estimates are imprecise and potentially biased. Furthermore, using family background variables as instruments, I find the opposite results. Moreover, if one excludes family income or skill as control variables then the estimates of the returns to schooling are upwardly biased.
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