The Private Return on Education and How to Solve the Endogeneity Problem: Case Indonesia

DOI

10.2991/icebef-18.2019.85How to use a DOI?

Keywords

return on education; mincer; pooling data; sample selection; instrumental variable

Abstract

This paper discusses the return on education using the Mincer model. The Mincer equation is a log natural income associated with years of school completion and work experience. One of the problems arising from the Mincer equation using the OLS (Ordinary Least Square) method is biased estimation result. The magnitude of the bias collected by previous researcher’s ranges from 0.7% -9.4%. Bias can occur due to sample selection and endogeneity problems. Problem of sample selection will be overcome with mills ratio or Heckit method while the endogeneity problem in this paper will be overcome by IV (Instrumental Variable) method. Instrumental variables must have a provision: the variables used as the instrument have no relation with the dependent variable, and the variable has correlated with the independent variable that is considered endogenous. Variable used as instrument is parent education. However, in this paper, I use pooling data from 1993-2014 with Indonesia Family Live Survey. Empirical results show the difference between return on education value using OLS and IV methods. Results with IV give a larger return value than OLS. The return value bias for the Indonesian case is still in tolerance.

Copyright

© 2019, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Nenny Hendajany
PY  - 2019/05
DA  - 2019/05
TI  - The Private Return on Education and How to Solve the Endogeneity Problem: Case Indonesia
BT  - Proceedings of the 1st International Conference on Economics, Business, Entrepreneurship, and Finance (ICEBEF 2018)
PB  - Atlantis Press
SP  - 382
EP  - 387
SN  - 2352-5428
UR  - https://doi.org/10.2991/icebef-18.2019.85
DO  - 10.2991/icebef-18.2019.85
ID  - Hendajany2019/05
ER  -