This paper evaluates the effect (in terms of private returns) of investment in
education on wages in the rural Philippines. Statistical endogeneity of education in the
wage function may result from (1) unobserved determinants of education that also
influence wages and/or (2) measurement error. Panel data are used that provide relevant
instruments, particularly distance to schools and measures of household resources, at the
time of schooling, to endogenize investments in education while estimating wage
functions. The estimated return to education increases more than 60 percent when
education is endogenized. This increase is robust to the inclusion of a measure of health,
models of selection into the sample, and measurement error. The paper suggests how
heterogeneous returns to education might account for the magnitude of the downward
bias in returns to schooling.