The objective of this study is to estimate the effects of fatherlessness on the children's educational attainment and entry-level wages. We consider an important methodological issue not addressed by previous researchers: unobserved heterogeneity across families. One can imagine that families vary greatly in a number of ways that are unobservable to the analyst. Moreover, many of these unobservable family characteristics are likely to be correlated both with the probability of divorce and with the well-being of the children. Thus a cross-sectional regression of children's educational attainment on a measure of their childhood family structure fails to idenify the effects of living in a fatherless family, because the effects of fatherlessness are confounded with the effects of the family-specific unobservables. We would generally expect such unobserved heterogeneity to lead to exaggerated estimates of the true effects of fatherlessness.
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