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The causal effect of education on earnings
TL;DR: This paper surveys the recent literature on the causal relationship between education and earnings and concludes that the average (or average marginal) return to education is not much below the estimate that emerges from a standard human capital earnings function fit by OLS.
Abstract: This paper surveys the recent literature on the causal relationship between education and earnings. I focus on four areas of work: theoretical and econometric advances in modelling the causal effect of education in the presence of heterogeneous returns to schooling; recent studies that use institutional aspects of the education system to form instrumental variables estimates of the return to schooling; recent studies of the earnings and schooling of twins; and recent attempts to explicitly model sources of heterogeneity in the returns to education. Consistent with earlier surveys of the literature, I conclude that the average (or average marginal) return to education is not much below the estimate that emerges from a standard human capital earnings function fit by OLS. Evidence from the latest studies of identical twins suggests a small upward "ability" bias -- on the order of 10%. A consistent finding among studies using instrumental variables based on institutional changes in the education system is that the estimated returns to schooling are 20-40% above the corresponding OLS estimates. Part of the explanation for this finding may be that marginal returns to schooling for certain subgroups -- particularly relatively disadvantaged groups with low education outcomes -- are higher than the average marginal returns to education in the population as a whole.
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TL;DR: In this article, the authors propose a conceptual model based on the estimation of quantities and shadow prices of cost aggregates, and of six main categories of economic benefits: technological spillovers, human capital formation, knowledge outputs, cultural effects, services to third parties including consumers, and a public good, the pure value of discovery.
50Â citations
TL;DR: This paper surveys the empirical literature on the growth effects of education and social capital and concludes that on balance, the recent cross-country evidence points to productivity benefits of education that are at least as large as those identified by labour economists.
Abstract: This paper surveys the empirical literature on the growth effects of education and social capital. The main focus is on the cross-country evidence for the OECD countries, but the paper also briefly reviews evidence from labour economics, to clarify where empirical work on education using macro data may be relatively useful. It is argued that on balance, the recent cross-country evidence points to productivity benefits of education that are at least as large as those identified by labour economists. The paper also discusses the implications of this finding. Finally, the paper reviews the emerging literature on the benefits of social capital. Since this literature is still in its early days, policy conclusions are accordingly harder to find.
49Â citations
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TL;DR: Using microdata on 30,000 childbirths in India and dynamic panel data models, causal effects of birth-spacing on subsequent neonatal mortality and of mortality on subsequent birth intervals are analyzed, finding evidence of frailty, fecundity, and causal effects in both directions.
Abstract: A dynamic panel data model of neonatal mortality and birth spacing is analyzed, accounting for causal effects of birth spacing on subsequent mortality and of mortality on the length of the next birth interval, while controlling for unobserved heterogeneity in mortality (frailty) and birth spacing (fecundity). The model is estimated using micro data on almost 30,000 children of 7,300 Indian mothers, for whom a complete retrospective record of fertility and child mortality is available. Information on sterilization is used to identify an equation for completion of family formation that is needed to account for right-censoring in the data. We find clear evidence of frailty, fecundity, and causal effects of birth spacing on mortality and vice versa, but find that birth interval effects can explain only a limited share of the correlation between neonatal mortality of successive children in a family. We also predict the impact of mortality on total fertility. Model simulations suggest that, for every neonatal death, an additional 0.37 children are born, of whom 0.3 survive.
49Â citations
TL;DR: In this paper, a dual income tax with a positive marginal tax rate on not only labor income but also capital income is proposed to alleviate the distortions of the labor tax on human capital accumulation.
Abstract: This paper analyzes optimal linear and non-linear taxes on capital and labor incomes in a life-cycle model of human capital investment, financial savings, and labor supply with heterogenous individuals. A dual income tax with a positive marginal tax rate on not only labor income but also capital income is optimal. The positive tax on capital income serves to alleviate the distortions of the labor tax on human capital accumulation. The optimal marginal tax rate on capital income is lower than that on labor income if savings are elastic compared to investment in human capital, substitution between verifiable and non-verifiable inputs in human capital formation is difficult, and most investments in human capital are verifiable so that education subsidies can directly reduce the tax wedge on learning. Numerical calculations suggest that the optimal marginal tax rate on capital income is substantial.
49Â citations