ARE OLS ESTIMATES OF THE RETURN TO SCHOOLING BIASED DOWNWARD - ANOTHER LOOK

We examine evidence on bias in OLS estimates of the economic return to schooling. To study omitted-ability bias, we use test scores availabl e in the National Longitudinal Survey of Youth as proxies for ability allowing for measurement error in these test scores. We also explore b iases from the endogeneity of schooling or experience, or measurement error in these variables. In our data, OLS estimation including test s cores appears to be appropriate and indicates an upward bias of roughl y 40% in the OLS estimate ignoring ability. This contrasts with eviden ce from other recent research using different statistical experiments to purge schooling of its correlation with the wage equation error.