Education, Wage and Quarter of Birth

We use ""Taiwan Area Family Income/Expenditure Survey"" data, and look into how number of schooling affects wage with two-stage regression model (also known instrumental variable method) which can remove endogeneity. In our model, quarter of birth is instrument; number of schooling is response variable in the first-stage regression; wage is response variable in the second-stage regression; age, square of age, size of household, marriage, city and country, and year of birth are the other explanatory variables in the first-stage regression and in the second-stage regression. The observed sample is in 1942~1951, 1952~1961, and 1962~1971; the sample is assessed separately for men and women. We found that the effect of number of schooling on wage in two-stage regression model is larger than the effect of number of schooling on wage in ordinary-least-square regression model. It is in line with the foreign empirical literature.