College quality and hourly wages: Evidence from the self-revelation model, sibling models and instrumental variables

• This paper uses a subset of the models that have rendered mixed findings in the literature.
• The goal is to investigate to what extent confounding biases the returns to college quality.
• The returns to college quality are positive.
• The returns increase over the course of students’ work careers.
• The standard regression model provides a reasonable estimate of the returns to college quality.

This paper addresses the recent discussion on confounding in the returns to college quality literature using the Norwegian case. The main advantage of studying Norway is the quality of the data. Norwegian administrative data provide information on college applications, family relations and a rich set of control variables for all Norwegian citizens applying to college between 1997 and 2004 (N = 141,319) and their succeeding wages between 2003 and 2010 (676,079 person-year observations). With these data, this paper uses a subset of the models that have rendered mixed findings in the literature in order to investigate to what extent confounding biases the returns to college quality. I compare estimates obtained using standard regression models to estimates obtained using the self-revelation model of Dale and Krueger (2002), a sibling fixed effects model and the instrumental variable model used by Long (2008). Using these methods, I consistently find increasing returns to college quality over the course of students’ work careers, with positive returns only later in students’ work careers. I conclude that the standard regression estimate provides a reasonable estimate of the returns to college quality.