Title and Abstract
Reassessment of classic case studies in labor economics with new instrument-free methods
It is demonstrated that even serious instrument invalidity will frequently not be detected by over-identification restriction tests, whereas instrumental variables based inference is shown to be seriously vulnerable regarding invalidity of instruments (even for mild invalidity, especially in combination with instrument weakness). Meanwhile, recently developed instrument-free methods provide valid confidence intervals for regression coefficients. These achieve set-identification through adopting credible ranges for endogeneity correlations. Besides, they provide more decisive evidence on invalidity of exclusion restrictions than Sargan-Hansen tests can. This all is illustrated for two classic case studies in labor economics focusing on the effect of education on earnings.
Kiviet, J. F., and S. Kripfganz (2020). Reassessment of classic case studies in labor economics with new instrument-free methods.
Working Paper, University of Amsterdam and University of Exeter.
Jan F. Kiviet
University of Amsterdam;
University of Exeter