rate of returns to education

The draft lottery (p.251 borjas)

An experiment for returns to education was performed using Vietnam draftees.[1] A cohort of draftees was randomly chosen by their year of birth, and each draftee was randomly assigned a lottery number between 1 and 365. The soldiers with high numbers were not drafted, while the soldiers with low numbers were drafted unless they went to college for three more years of schooling. There is no reason to expect that the differences in ability between soldiers in the group were significant so the experiment controls for ability bias. A soldier born on January 8^th 1951 has on average the same ability as a soldier born on January 10^th 1951. So to compare the returns to education between the soldiers with the low lottery numbers with extra schooling and the soldiers with high lottery numbers without extra schooling gives the true rate of returns to education. The results were that the returns are on the order of 7%.

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[1] Angrist, j. and Krueger, a. “estimating the payoff to schooling using the vietnam-era draft lottery” national bureau of economic research working paper no. 4067, may 1992