Estimating the Economic Return to Schooling on the Basis of Panel Data

This paper is concerned with estimating the economic return to schooling of men in the Netherlands.We adopt an IV approach to estimate a panel data model with random individual effects.We exploit the fact that older individuals have relatively less schooling compared to younger individuals to construct instruments and include GNP per worker at the time an individual tumed 16 to control for birth-cohort effects.The estimated return to schooling is about 15%. Ignoring the endogencity of schooling results in a lower return to schooling. Ignoring birth-cohort effects results in a lower return to work experience