“Education, Income, and Ability”, 1972-05 (; backlinks):
Current estimates of the contribution of education to economic growth have been questioned because they ignore the interaction of education with ability. Whether the neglect of ability differences in the analyses of the income-education relationship results in estimates that are too high was considered in an earlier paper by one of the authors (1970), and a negative answer was conjectured.
In this paper, we pursue this question a bit further, using a new and larger body of data. Unfortunately, a definitive answer to this question is hampered both by the vagueness and elasticity of “education”and “ability” as analytical concepts and by the lack of data on early (preschooling) intelligence.
The data examined in this paper are based on a 1964 sample of US military veterans. The variables measured include scores on a mental ability test, indicators of parental status, region of residence while growing up, school years completed before service, and school years completed during or after service. These have allowed us to inquire into the separate effects of parental background, intelligence, and schooling.
…Our findings support the economic and statistical importance of schooling in the explanation of observed differences in income. They also point out the relatively low independent contribution of measured ability (AFQT scores). Holding age, father’s status, region of origin, length of military service, and the AFQT score constant, an additional year of schooling would add about 4.6% to income in our sample. At the same time a 10% improvement in the AFQT score would only add about 1% to income.
Using a “clean” schooling variable, incremental schooling, we concluded that the bias in its estimated coefficient due to the omitted ability dimension is not very large (on the order of 10%).
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