A comparative study of returns to education and the importance of genetic and environmental factors: Evidence from different twins data

There have been numerous twin-based studies in the past that control for the unobservable variables in the analyses. However, these past studies have often yielded contradictory results with no consensus on some important issues and no definite conclusions. The objective of the present study is an attempt to explain some of the differences in the past studies, and to re-examine some issues on returns to education, the importance of genetic and environmental factors, and the significance of measurement errors.; This study applies four twin-based models to three available US twin data. The empirical results in this study show that (1) while some differences in existing studies are caused by different data used, other differences are due to different models used; (2) the “true” returns to schooling are mostly less than the “overall” returns to schooling, indicating a positive omitted variable bias; (3) the omitted variables are a significant portion, viz. approximately 40%, of the “overall” returns to schooling; (4) these omitted variables, when divided into the genetic and environmental factors, generally indicate that environmental factors have a stronger effect than genetic factors; (5) models with two schooling variables are more prone to measurement error, biasing the estimates more significantly; (6) the measurement error problem in the schooling variable biases the estimates and the magnitude of the bias depends on the data used; and (7) results for males and females are different.