This paper extends the method of local instrumental variables developed by Heckman and Vytlacil (1999, 2001, 2005) to the estimation of not only means, but also distributions of potential outcomes. The newly developed method is illustrated by applying it to changes in college enrollment and wage inequality using data from the National Longitudinal Survey of Youth of 1979. Increases in college enrollment cause changes in the distribution of ability among college and high school graduates. This paper estimates a semiparametric selection model of schooling and wages to show that, for fixed skill prices, a 14% increase in college participation (analogous to the increase observed in the 1980s), reduces the college premium by 12% and increases the 90-10 percentile ratio among college graduates by 2%.
Authors
Research Fellow Columbia University
Sokbae is an IFS Research Fellow and a Professor at Columbia University, with an interest in Econometrics, Applied Microeconomics and Statistics.
Research Fellow University College London
Pedro is a Professor of Economics at University College London and an economist in the IFS' Centre for Microdata Methods and Practice (cemmap).
Working Paper details
- DOI
- 10.1920/wp.cem.2009.0109
- Publisher
- IFS
Suggested citation
Carneiro, P and Lee, S. (2009). Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality. London: IFS. Available at: https://ifs.org.uk/publications/estimating-distributions-potential-outcomes-using-local-instrumental-variables (accessed: 19 May 2024).
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