Returns to Education Using a Sample of Twins: Evidence from Japan^*

The objective of this article is to measure the causal effect of education on earnings using a large dataset of twins compiled in Japan with wide-ranging socioeconomic information. Recent research conducted in China showed that, contrary to the case in Western countries, ability bias is large in estimating the return to education. It is argued that the low rate of return in China is in part due to the competitive and exam-oriented education system, which is similar to the system in Japan. The empirical results in our study show that the estimated rate of return to education using the sample of identical twins in Japan is 9.3 percent even after omitted ability bias and measurement errors in self-reported schooling were corrected. Our findings suggest that the conventional OLS estimate is not significantly contaminated by potential biases in Japan.