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α: calibrated so average coauthorship-adjusted count equals average raw count
This paper studies the relationship between abilities, schooling choices, and black-white differentials in labor market outcomes. The analysis is based on a model of endogenous schooling choices. Agents schooling decisions are based on expected future earnings, family background, and unobserved abilities. Earnings are also determined by unobserved abilities. The analysis distinguishes unobserved abilities from observed test scores. The model is implemented using data from the NLSY79. The results indicate that, even after controlling for abilities, there exist significant racial labor market gaps. They also suggest that the standard practice of equating observed test scores may overcompensate for differentials in ability.