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This paper revisits the issue of estimating the returns to schooling within a framework that allows multiple unobserved skills with potentially time-varying prices where both skills and prices are possibly correlated with schooling. A common approach to addressing the problem of ability bias emanating from the unobservability of skills is to augment the earnings-schooling regression with various measures of cognitive and non-cognitive ability as proxies for these skills. While the adequacy of such measures has long been questioned, a rigorous assessment of their effectiveness in estimating the magnitude of ability bias has received relatively less attention. This paper undertakes a formal evaluation of the proxy approach by adopting a methodology that models the skills and their prices using an unobserved factor structure in which the factor loadings represent the latent skills and the common factors their associated prices. Our factor model approach allows consistent estimation of the returns to schooling without the need to rely on proxies thereby providing a flexible test bed for quantifying the contribution of the proxies to the aggregate least squares bias. The factor model estimators may also be viewed as implicitly estimating the measurement error inherent in the proxies. Our empirical results using panel data from the NLSY79 show that the estimated ability bias lies between 39-51% for our most general specification. A bias decomposition analysis indicates that the commonly used proxies can explain very little of the estimated bias. Direct tests for the viability of the proxies further confirm their inadequacy in capturing the underlying latent skills.

We propose an easily computable measure called the Major Complexity Index (MCI) that captures the latent skills taught in different majors. By applying the Method of Reflections to the major-to-occupation network, we construct a scalar measure of the relative complexity of majors. Our measure provides strong explanatory power of major average earnings and employment. Further evidence suggests that the MCI is strongly associated with advanced skills such as quantitative problem-solving, and the use of computing technology. We also provide a two-stage algorithm to partial out selection on observables which opens up possibilities of applying the complexity measure in various contexts.

We estimate whether students update their college application portfolios in response to large, unanticipated information shocks generated by the release of SAT scores -- a primary component of admissions decisions. Exploiting new population data on the timing of college selection and a policy that induces students to choose colleges prior to taking exam, we find that the release of scores causes students to update their portfolios in terms of selectivity, tuition, and sector. However, the magnitude of updating is too modest to significantly reduce unexplained variation across students, suggesting that non-academic factors may be the dominant determinants of college choice.

As college education has become one of the leading export industries in the U.S., issues related to international students have attracted increasing attention. In this paper, we investigate potential explanations for the recent expansion in enrollments of undergraduate international students, with a particular focus on an analysis of the supply-side of educational services. Our theoretical and empirical work identifies an important determinant of differences across colleges in the enrollment of different types of students, namely the level of states' financial support of 4-year public institutions. Specifically, public colleges increase the proportion of out-of-state students in general, and international students in particular during the 2008 to 2012 period, as these students on average pay higher tuition rates, and thus can provide additional tuition revenue and offset the loss of state support. This adjustment is particularly large for selective institutions. Moreover, estimates using administrative student visa data with country of origin information suggest that the growth in international students is largely Chinese students. Further, we find evidence that these changes in the composition of the student body at public colleges have been accompanied by changes in tuition rates and student body size. These changes have important implications with respect to human capital acquisition across student types with type defined by home location and ability.