Publisher Summary This chapter focuses on schooling, as an investment with market returns is not intended to detract from the importance of education as a public good and as a source of consumption benefits, but rather to review how economic concepts and statistical methods have recently progressed in quantifying the roles of education in economic development. This chapter surveys a small part of the extensive literature on the linkages among education, productivity, and development, and assesses several areas where concerted research might clarify important issues and potentially change policies. This chapter presents an economic interpretation of this educational explosion. Most of the growth in public expenditures on education is attributed to increases in growth of real income per adult. The chapter describes the expansion of the world's educational system both in terms of its inputs of public and private resources and its output of students, and then estimates how income, price, and population constraints appear to govern this process. The chapter presents a contrast on causal frameworks proposed to explain the relationship between education and productivity, and discusses sources of data to measure the relationship and discriminate among causal interpretations. The chapter reviews evidence on the market returns to schooling measured for entrepreneurs and employees, men and women, and migrants and nonmigrants. The chapter also presents the evidence of schooling's effects on nonmarket production. The chapter discusses the policy issues for development that arise from the apparent effects of education on economic productivity and the mechanisms used to finance and manage the educational system.

Chapter 13 Education investments and returns

Previous analyses of postwar black/white earnings ratios have found a more rapid rate of increase in the period since 1964 than before. The reason for this acceleration is unresolved. One view is that federal equal-employment activities have increased the relative demand for black labor. An alternative view is that rising relative earnings reflects (1) reductions in relative supply and (2) the "statistical" effect of low earners raising median earnings by withdrawing from the labor market. This study differs from previous work on the subject in two ways. First, the restrictions on the universe from which published median earnings data by race are calculated are discussed explicitly. The restrict ion most commonly addressed in previous work (having positive earnings in the year in question) is found to be less important than an undiscussed restriction (being employed as a wage and salary worker the following March). Second, data on the distribution of earnings are used to determine the effect of labor market dropouts on median earnings, instead of trying to estimate this effect (as well as demand and supply effects) from time series data. This permits comparison of "corrected" and "uncorrected" post-1964 trends. For males, about half of the "uncorrected" trend remains after the relative earnings variable is corrected for labor market withdrawals. For females, between half and four fifths remains.

Black-White Earnings Ratios Since the Civil Rights Act of 1964: The Importance of Labor Market Dropouts

Published median earnings of wage and salary workers by race and sex are based on distributions that exclude those without earnings and those not employed as wage and salary workers at the time of the survey. It has been argued that the changing importance of these exclusions, rather than any improvement in the distribution of offered wages for blacks, accounts for the apparent increase in black-white relative median earnings. This paper presents a new method for correcting the published medians for such censoring. The apparent improvement in relative earnings is reduced but not eliminated by the correction.

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In 1958 Jacob Mincer pioneered an important approach to understand how earnings are distributed across the population. In the years since Mincer’s seminal work, he as well as his students and colleagues extended the original human capital model, reaching important conclusions about a whole array of observations pertaining to human well-being. This line of research explained why education enhances earnings; why earnings rise at a diminishing rate throughout one’s life; why earnings growth is smaller for those anticipating intermittent labor force participation; why males earn more than females; why whites earn more than blacks; why occupational distributions differ by gender; why geographic and job mobility predominate among the young; and why numerous other labor market phenomena occur. This paper surveys the answers to these and other questions based on research emanating from Mincer’s original earnings function specification.

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Earnings Over the Lifecycle: The Mincer Earnings Function and Its Applications

This study used three types of evidence to analyze the nature and cause of black economic progress in post-World War II years: aggregate evidence on the timing and incidence among skill groups of changes in the relative earnings or occupational position of blacks; cross-sectional evidence on the family background determinants of the socioeconomic achievement of blacks; and information from company personnel offices regarding personnel policies toward black (and other) workers affected by civil rights legislation.

Black Economic Progress after 1964: Who Has Gained and Why?

Census data from 1960 and 1970, augmented with schooling data (expenditures per pupil as well as other measures of school quality) from the various Biennial Surveys of Education, are utilized to analyze the impact of school quality on earnings and to ...

Arthur H. Padilla

Papers

The Rate of Return to Schooling and the Business Cycle