Estimating the Payoff to Schooling Using the Vietnam-era Draft Lottery

Abstract

During the Vietnam draft priority for military service was randomly assigned to draft-age men in a series of lotteries. However, many men managed to avoid military service by enrolling in school and obtaining an educational deferment. This paper uses the draft lottery as a natural experiment to estimate the return to education and the veteran premium. Estimates are based on special extracts of the Current Population Survey that the Census Bureau assembled for 1979 and 1981-85. The results suggest that an extra year of schooling acquired in response to the lottery is associated with 6.6 percent higher weekly earnings. This figure is about 10 percent higher the OLS estimate of the return to education for this sample, which suggests there is little ability bias in conventional estimates of the return to education. Our findings are robust to a variety of "alternative assumptions about the effect of veteran status on earnings.