Earnings, education, genetics, and environment

A major and well-recognized difficulty in estimating the effects of education on earnings is that the more educated are likely to be more able, irrespective of education. If ability also determines earnings and is not controlled, ordinary least squares will yield biased estimates of the education coefficient. In this study, we use data on identical twins to control for differences in ability that arise from genetic endowments and family environment. Not controlling for genetics and family environment may cause a large bias, up to two-thirds of the noncontrolled coefficient.