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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: This article studied the relationship between age and literacy skills in Canada, Norway and the U.S. and found that the modest negative slope of the literacy-age profile in cross-sectional data arises from offsetting ageing and cohort effects.
Abstract: We study the relationship between age and literacy skills in Canada, Norway and the U.S. – countries that represent a wide range of literacy outcomes – using data from the 1994 and 2003 International Adult Literacy Surveys. In cross-sectional data there is a weak negative partial relationship between literacy skills and age. However, this relationship could reflect some combination of age and cohort effects. In order to identify age effects, we use the 1994 and 2003 surveys to create synthetic cohorts. Our analysis shows that the modest negative slope of the literacy-age profile in cross-sectional data arises from offsetting ageing and cohort effects. Individuals from a given birth cohort lose literacy skills after they leave school at a rate greater than indicated by cross-sectional estimates. At the same time, more recent birth cohorts have lower levels of literacy. These results suggest a pervasive tendency for literacy skills to decline over time and that these countries are doing a poorer job of educating successive generations. All three countries show similar patterns of skill loss with age, as well as declining literacy across successive cohorts. The countries differ, however, in the part of the skill distribution where falling skills are most evident. In Canada the cross-cohort declines are especially large at the top of the skill distribution. In Norway declining skills across cohorts are more prevalent at the bottom of the distribution. In the U.S. the decline in literacy skills over time is most pronounced in the middle of the distribution.
46 citations
TL;DR: In this article, the authors point out one of the under-appreciated hazards of seeking to estimate heterogeneous causal effects: conventional selection bias (that is, selection on baseline differences) can easily be mistaken for heterogeneity of causal effects.
Abstract: The role of education in the process of socioeconomic attainment is a topic of long standing interest to sociologists and economists. Recently there has been growing interest not only in estimating the average causal effect of education on outcomes such as earnings, but also in estimating how causal effects might vary over individuals or groups. In this paper we point out one of the under-appreciated hazards of seeking to estimate heterogeneous causal effects: conventional selection bias (that is, selection on baseline differences) can easily be mistaken for heterogeneity of causal effects. This might lead us to find heterogeneous effects when the true effect is homogenous, or to wrongly estimate not only the magnitude but also the sign of heterogeneous effects. We apply a test for the robustness of heterogeneous causal effects in the face of varying degrees and patterns of selection bias, and we illustrate our arguments and our method using National Longitudinal Survey of Youth 1979 (NLSY79) data. data.
46 citations
TL;DR: Using 18 consecutive household surveys, this paper explored the impact of Taiwan's extension of tuition-free education from 6 to 9 years upon schooling and labor market outcomes (participation, sector/class of activity, and work income).
46 citations
TL;DR: In this article, the authors evaluated a specific manpower training program in Austria, a program which was particularly designed for workers affected by a structural crisis in the steel industry, and used a treatment/control group approach together with instrumental variables estimates to control for selective entry into training.
Abstract: – The purpose of this article is to evaluate a specific manpower training program in Austria; a program which was particularly designed for workers affected by a structural crisis in the steel industry., – Microeconometric evaluation methods were used to assess earnings and employment probabilities up to five years after training. A treatment/control group approach was used together with instrumental variables estimates to control for selective entry into training., – The results show considerable wage gains – even for a period of five years after leaving the Foundation – as well as improved employment prospects., – The research has concentrated on a very specific project, which was exceptional in terms of broad training and counseling as well as in terms of funding and selection of trainees; therefore, it is not easily generalisable to other programs., – The success of the program can be traced back to high incentives of all participants which, in turn, was caused by joint financing by local government, the workers themselves and the firm which made these workers redundant in the first place. Moreover, a combination of job counseling, search activities and training in capabilities which give presentable certificates turned out to be successful., – The study will be valuable to those who look at specifics of job training programs as well as to those who are interested in designing programs for structural change.
46 citations
TL;DR: The authors found that the low income mobility in the United States and Britain is almost entirely due to the part of the parent-son association that is not mediated by educational attainment, and that parental income is far more important for earnings at a given level of education than in Sweden, a result that holds also when controlling for cognitive ability.
Abstract: Previous studies have found that intergenerational income persistence is relatively high in the United States and Britain, especially as compared to Nordic countries. We compare the association between family income and sons' earnings in the United States (National Longitudinal Study of Youth 1979), Britain (British Cohort Study 1970), and Sweden (Population Register Data, 1965 cohort), and find that both income elasticities and rank-order correlations are highest in the United States, followed by Britain, with Sweden being clearly more equal. We ask whether differences in educational inequality and in return to qualifications can explain these cross-country differences. Surprisingly, we find that this is not the case, even though returns to education are higher in the United States. Instead, the low income mobility in the United States and Britain is almost entirely due to the part of the parent-son association that is not mediated by educational attainment. In the United States and especially Britain, parental income is far more important for earnings at a given level of education than in Sweden, a result that holds also when controlling for cognitive ability. This goes against widespread ideas of the United States as a country where the role of ascription is limited and meritocratic stratification prevails.
46 citations