Estimation of Educational Borrowing Constraints Using Returns to ...

educational borrowing constraints 147
set of wage predictors that capture more dimensions of ability than
AFQT by itself.
Panel E of the table summarizes the instruments used below for endogenous
schooling. Local college is a binary indicator for the presence
of any college (either two-year or four-year) in the county of residence
at age 17 (or age 16 for the handful who graduate from high school
by age 17). 17 College identifiers were merged to NLSY annual county
of residence measures from the Department of Education’s annual
Higher Education General Information Survey (HEGIS) and the Integrated
Postsecondary Education Data System’s (IPEDS) Institutional
Characteristics surveys, which contain annual data on location, type of
institution, tuition, and other variables associated with colleges in the
United States. 18
Local labor market conditions were created from annual county-level
labor market data on average annual earnings in industries dominated
by unskilled workers. 19 Our proxy for forgone earnings is a static variable
created from this series taken in a person’s county of residence at age
17 (local earnings at age 17 in panel E of the table). The variable mean
local earnings over working life is constructed in the following manner.
We condition on the county in which a student lived at age 17. We then
average the annually varying labor market measure of earnings for this
county for the years during which this person works (starting at age 22)
and appears in the sample (up to age 33). We also studied the local
(county) unemployment rate in our schooling choice analysis, but results
using this variable were very imprecise.
Panel F shows means of annually varying variables used in the wage
analysis. Hourly wage is the wage at the current or most recently held
job as of the interview date in each year. Current local earnings is an
annual measure constructed from the local annual earnings series just
discussed. It is measured for the county in which a person currently
lives and is discussed further below. Work experience is a measure of
potential work experience and is constructed as age minus schooling
minus six.
17
We also explored a set of three indicator variables for two-year college, four-year
college, and both. Our conclusions below were unchanged, though standard errors of
estimates improved slightly in some cases when the three indicators were used together.
18
A number of specialty colleges, generally with enrollments less than 100, and federal
institutions, such as the Naval Academy, were excluded.
19
The data are taken from annual Bureau of Economic Analysis data. Since the bureau’s
data are reported by industry and not by occupation, we use average earnings in service,
agriculture, and the wholesale and retail trade industries. A number of other labor market
measures using a variety of industry aggregates were explored, with little difference to the
estimates presented below. This was true apparently because, except for government jobs,
average wages across a variety of industries in the same local labor market exhibit a high
degree of correlation.