The potential impact that unobserved ability can have on both schooling and
earnings outcomes has been modelled by Ashenfelter and Rouse (1998). This
paper applies their model to the Australian Twins Sample. The best estimate
of the return to schooling for genetically identical (or MZ) twins is 8.9
per cent. Measurement errors in the schooling data are shown to constitute
a more serious problem than the omission of the family effects that impact
on ability. Individuals from higher ability families receive a lower margin
al benefit from their investment in human capital.