Score one for the signaling model of education

In the new AER there is a paper by Melvin Stephens Jr. and Dou-Yan Yang, the abstract is this:

Causal estimates of the benefits of increased schooling using US 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.

In other words, those semi-natural experiments for the return to education, when some regions move with extra doses of compulsory schooling before others and we estimate differential wage effects, maybe don’t show as much as we used to think.  As I’ve remarked to Bryan Caplan, if there is a criticism of a famous or politically correct result (or better yet both) getting published in the AER, you can up your Bayesian priors on that criticism being on the mark.

There are ungated copies of the paper here.


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