article 2 week 1

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Questions and Answers

How do Ashenfelter and Krueger utilize monozygotic twins in their study to address the issue of omitted variable bias in estimating the returns to schooling?

By exploiting the genetic similarity and shared family backgrounds of twins to minimize the influence of unobserved ability on the schooling-wage relationship. (correct)
By comparing the wage rates of twins with similar schooling levels to control for genetic differences.
By focusing on dizygotic twins to maximize the variation in genetic endowments and isolate the impact of schooling.
By using twins raised apart to eliminate the effect of shared environmental factors on educational attainment.

What methodological approach did Ashenfelter and Krueger employ to evaluate and mitigate the impact of measurement error in reported schooling levels?

Relying on official educational records to obtain precise schooling data, thereby reducing potential reporting errors.
Collecting independent reports of each sibling's schooling level from both twins to create a cross-validation mechanism. (correct)
Applying a uniform correction factor to all reported schooling levels derived from national averages to account for systemic biases.
Using statistical techniques to extrapolate schooling levels based on wage data, assuming a direct relationship between income and education.

How do the findings of Ashenfelter and Krueger challenge previous research on the economic returns to schooling?

By showing that the returns to schooling are approximately the same as previous estimates but are more equitably distributed across different demographic groups.
By estimating substantially larger returns to schooling after correcting for measurement error, suggesting prior studies underestimated the benefits of additional education. (correct)
By suggesting that returns to schooling are significantly lower than previously estimated, indicating an overinvestment in education.
By demonstrating that the returns to schooling are highly variable and dependent on the specific field of study, making generalizations unreliable.

What implications can be derived from Ashenfelter and Krueger's findings with respect to the impact of unobserved ability on educational attainment and subsequent wages?

Unobserved ability may be negatively related to schooling, suggesting that individuals with higher innate abilities may choose less schooling. (B) Signup and view all the answers

According to the study, what is the key methodological improvement that allows for a more accurate estimation of the economic returns to schooling compared to traditional methods?

The use of twin data combined with multiple measurements of schooling to account for both omitted ability bias and measurement error. (B) Signup and view all the answers

What is the primary conclusion drawn by Ashenfelter and Krueger regarding the role of measurement error in previous studies on the returns to schooling?

Measurement error can lead to substantial underestimation of the returns to schooling, particularly in studies that rely on self-reported data. (A) Signup and view all the answers

How might the findings of Ashenfelter and Krueger influence policy decisions related to education and investment in human capital?

By supporting increased investment in education, as the actual economic returns may be higher than previously believed due to corrections for measurement error and ability bias. (B) Signup and view all the answers

What are the potential limitations or caveats associated with generalizing the findings of Ashenfelter and Krueger's study to broader populations?

The unique characteristics of twins may limit the generalizability of the results to the broader population. (C) Signup and view all the answers

Considering Ashenfelter and Krueger's findings, what alternative strategies could researchers adopt to further refine estimates of the economic returns to schooling?

Employing longitudinal studies that follow individuals over extended periods to capture the long-term effects of schooling on wages. (A) Signup and view all the answers

What are the implications of Ashenfelter and Krueger's study for interpreting prior research that did not account for measurement error and omitted ability variables?

Prior estimates of the returns to schooling may be substantially understated due to the failure to account for these biases, suggesting that education is a more valuable investment than previously recognized. (B) Signup and view all the answers

According to Mincer's (1974) model, what specific condition must be met for the proportional increase in earnings per year of schooling to accurately reflect the rate of return on schooling investments?

The return to schooling must be independent of the level of schooling attained, and the primary costs of schooling must be the earnings forgone during the schooling period. (D) Signup and view all the answers

Based on the data provided in Table 1, which of the following statements accurately compares the self-reported education levels across the three groups?

Identical twins report, on average, higher levels of education than fraternal twins and the general population. (D) Signup and view all the answers

Considering the correlation matrix for identical twins (Table 2A), what does the correlation coefficient of 0.563 between Y1 and Y2 suggest?

There is a moderate positive correlation between Y1 and Y2, suggesting a notable degree of shared variance. (B) Signup and view all the answers

In the Ordinary Least Squares (OLS) regression results presented in Table 3, what is the implication of the coefficient for the 'White' variable being -0.410?

Being White is associated with a decrease of 0.410 units in the dependent variable, suggesting a negative relationship with earnings. (B) Signup and view all the answers

Based on the information in Table 3, evaluate the effect of age on earnings, considering both 'Age' and 'Age Squared' coefficients. At what point does the relationship between age and earnings begin to diminish, assuming earnings are the dependent variable?

Earnings increase with age, but at a decreasing rate, with the peak earnings occurring at approximately age 50. (A) Signup and view all the answers

How would you interpret the R-squared value of 0.260 in the OLS regression presented in Table 3, considering the factors influencing earnings?

The model explains 26% of the variance in earnings, suggesting that other unobserved factors may play a significant role. (D) Signup and view all the answers

Considering the data on twins reporting the same education levels, what implications can be drawn from the differences between identical and fraternal twins?

Identical twins are more likely to report the same education, suggesting a stronger influence of genetic factors. (B) Signup and view all the answers

Based on the provided descriptive statistics (Table 1), what can be inferred about the union coverage across the twin groups and the general population?

Fraternal twins have a higher union coverage than identical twins, but about the same as the general population which is not listed. (C) Signup and view all the answers

Suppose you want to estimate the causal effect of education on wages using an OLS regression. Given the potential for omitted variable bias (e.g., ability), how might using the 'General Least Squares' estimate, which averages schooling reports from twins, address this methodological concern?

Averaging schooling values reduces the impact of individual-specific characteristics (e.g., genetic factors) that may bias the 'Own education' coefficient. (A) Signup and view all the answers

Figure 1 (not provided) contains a scatter diagram of the intrapair (logarithmic) wage difference against the intrapair schooling difference. Assume the scatterplot shows a positive relationship. What could this visually suggest about the effect of schooling differences on wage differences within twin pairs?

The positive relationship suggests that as the difference in schooling between twins increases, the difference in their logarithmic wages also tends to increase. (B) Signup and view all the answers

If the estimate for own education using instrumental variables is 0.105, what does this suggest about the relationship between education and wages, accounting for potential endogeneity?

A one-year increase in education is associated with a 10.5% increase in log hourly wage, controlling for confounding factors. (A) Signup and view all the answers

Given the empirical covariance between Ay and AS' is 0.338 (from Table 8), how does this covariance inform our understanding of the relationship between wage differences (Ay) and schooling differences (AS') among twins?

It indicates a positive relationship, where larger differences in schooling between twins are associated with larger differences in their wages. (D) Signup and view all the answers

In the context of maximum likelihood estimates, what is the key distinction between models with 'independent errors' and 'correlated errors' in the analysis of twin data?

Models with independent errors assume measurement errors in education are unrelated within twin pairs, while correlated errors allow for a relationship. (C) Signup and view all the answers

If the Ordinary Least Squares (OLS) estimate for `AS` (years of schooling) is 0.107 and the Instrumental Variable (IV) estimate is 0.129, what can be inferred about the potential bias in the OLS estimate?

OLS estimate is biased upwards due to unobserved factors that positively correlate with both schooling and wages. (C) Signup and view all the answers

Based on Table 10, which presents the theoretical moment matrix, what does the term $\beta{\sigma{^2}_{\delta_s}}$ in the covariance between Ay and AS' represent, and what does it imply?

It represents the component of the covariance between wage differences (Ay) and schooling differences (AS') that involves the product of the return to schooling ($\beta$) and the variance of true schooling differences ($\sigma{\delta{\sigma}}^2$). (D) Signup and view all the answers

How might measurement error in reported education levels affect Ordinary Least Squares (OLS) estimates of the return to schooling, and how do instrumental variable (IV) techniques attempt to address this?

Measurement error typically attenuates OLS estimates, causing them to underestimate the true return to schooling. IV techniques attempts to address this by using a variable that is correlated with true education but uncorrelated with the measurement error to isolate the true effect of education. (A) Signup and view all the answers

Considering the diagram's portrayal of twin data, with 'Difference in Log Hourly Wage' on the vertical axis and 'Difference in Years of Schooling' on the horizontal axis, how does the scatter of data points inform us about the role of factors other than education in explaining wage differences?

Even among twins with identical education levels (zero difference in years of schooling), there’s a spread in wage differences. This shows factors beyond education, such as ability, experience, and measurement error, contribute to wage differences. (C) Signup and view all the answers

In the context of correlated measurement errors in twin studies, how does the correlation of errors within twin pairs affect the estimated return to schooling ($\beta$), and what could cause such correlated errors?

Correlated errors lead to inconsistent estimators for return to schooling and could arise due to shared environmental factors or common reporting biases within families. (A) Signup and view all the answers

What is the primary challenge in estimating the causal effect of education on wages using observational data, and how do instrumental variable (IV) techniques attempt to address this challenge?

The endogeneity results in biased estimates. IV isolates/exogenous variation in education that is unrelated to these confounders to estimate the true causal effect. (C) Signup and view all the answers

Given the GLS estimate uses own education as the instrumental variable, what concern might arise regarding the validity of these estimates, and how could one assess the strength of this instrument?

Own education might be endogeneous; Examine the F-statistic from the first-stage regression to assess the instrument's strength. (D) Signup and view all the answers

Flashcards

Economic Returns to Schooling

The increase in wages resulting from an additional year of schooling.

Monozygotic Twins

Individuals with identical genes and similar upbringing, useful for controlling genetic and environmental factors.

Measurement Error

Inaccuracies in reported schooling levels that can distort estimates of returns to schooling.

Omitted Ability Variables

Factors not directly observed that can influence both schooling and wages (e.g., intelligence, motivation).