Estimates of the return to schooling and ability: evidence from sibling data?

We use sibling data on wages, schooling, and aptitude test scores from the 1979 National Longitudinal Survey of Youth (NLSY79) to obtain OLS, family fixed effects, and fixed effects instrumental variable estimates of the return to schooling for a large sample of non-twin siblings. Following recent studies that use identical twin samples, we use sibling-reported schooling as an instrument for self-reported schooling. Controlling for aptitude test scores has a substantial impact on estimated returns to schooling even within families, and there is a large return to test scores that is comparable in size within and between families. We also find that the return to schooling is higher for older brothers than for younger brothers and for women than men. Finally, because the NLSY79 contains multiple sibling reports of education for the same individual, we are able to test and reject the overidentifying restrictions for the validity of sibling-reported schooling as an instrumental variable. (c) 2004 Elsevier B.V. All rights reserved.