Estimating The Return To Education With Cognitive And Non-cognitive Ability

Based on the urban sample of the 2007 China Household Income Project (CHIP), this paper uses a new method developed in modern economics to solve the endogenous problem caused by the omission of ability in estimating the return to education. While estimating the return to education, this paper divides the ability as cognitive ability and non-cognitive ability, and estimates both the return to schooling and the return to college.While estimating the return to education with cognitive ability. This paper uses a new method that is different from traditional method, in the way, we use CEE score to recognize individuals with the same or similar cognitive ability, and then we can control the cognitive ability. Specifically, after adding individual performance at school as indicator for cognitive ability, the paper matches observations into different groups, based on their information about College Entrance Examination (CEE), and then we use dummy variables to indicate these groups and add dummy variables into the regressions. In this way, we can compare the effects of education on income among those with similar CEE scores. This allows us to obtain unbiased estimates for return to education. In addition, we add CEE score as direct indicator for cognitive ability, we estimate the effects of cognitive on income.While estimating the return to education with non-cognitive ability, this paper uses Five Factors of Personality in modern psychology to measure non-cognitive ability. We use different aspects of personality, and Non-cognitive Ability Index that is created based on them to measure non-cognitive ability. We add different aspects of personality and Non-cognitive Ability Index into regression so that we can control the effect of non-cognitive ability on the return to education and estimate the effect of non-cognitive ability on income.Our results confirm that the return to education is usually overestimated because of the omission of unobserved cognitive ability, and cognitive ability has positive and significant impact on income. However, when non-cognitive ability is omitted, the return to education is neither overestimated nor underestimated because non-cognitive ability is uncorrelated with education. Meanwhile, our results confirm that non-cognitive ability also has positive and significant impact on income.