Ashenfelter proposed a method to estimate the causal effect of education on income based on the Vietnam draft lottery. The table below shows the average education and annual salary of two groups of men: those born on September 7, 1950, and those born on September 8, 1950.
|
Birth date:
|
Lottery number:
|
Average education, in years
|
Average salary in 1990
|
|
September 7, 1950
|
1
|
12.3
|
$42,000
|
|
September 8, 1950
|
307
|
11.8
|
$40,000
|
a. Based on Ashenfelter's methodology, what is an estimate of the rate of return to a year of education (in percent terms)?
b. What is the key assumption of Ashenfelter's method? (HINT: how are men born on September 7 different from men born on September 8...and how are they the same)?
c. Describe one way in which this paper helps to estimate the value of schooling. Explain one limitation of this study in thinking about the average return to education.