Biases in Twin Estimates of the Return to Schooling: A Note on Recent Research
Ashenfelter and Krueger's (1993) within-twin, measurement-error- corrected estimate of the return to schooling is about 13-16 percent. If their estimate is unbiased, then their results imply considerable downward measurement error bias in uncorrected within-twin estimates of the return to schooling, and considerable downward omitted ability bias in cross-section estimates. This note points out that if there are ability differences among twins, then AK's IV estimator exacerbates the omitted ability bias in the within-twin estimate. Thus, upward omitted ability bias in within-twin estimates may provide an alternative explanation of the surprisingly high estimates of the return to schooling that AK obtain, and permit their results to be reconciled with upward, rather than downward omitted ability bias in cross-section estimates.