All simulators
A Structural Model of Wages
Structural equations for ability, schooling and wages: the short regression slope versus the structural return.
Day 50: Structural Causal Modelsstructural β
0.080
short regression
0.105
β + c·a/Var(S)
ability bias
0.025
Var(S) = 8.00
regression on schooling onlystructural effect βhigh abilitylow ability
Structural equations: Ability A ~ N(0, 1); Schooling S := 12 + a·A + U_S; log wage := 1.5 + β·S + c·A + U_W. The regression of log wages on schooling alone (orange) has slope β + c·a / Var(S); the structural effect is β (green). Colour shows ability.