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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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01 Jan 2008
TL;DR: A policy is a definite course or method of action selected from among alternatives and in light of given conditions to guide and determine present and future decisions, and an educational policy is "a specification of principles and actions, related to educational issues, which are followed or which should be followed and which are designed to bring about desired goals".
Abstract: Policy analysis is a term that is used very often in education circles and seems to have multiple meanings depending on the background of the person using the phrase and the context in which it is used. Generally speaking, a policy is “a definite course or method of action selected from among alternatives and in light of given conditions to guide and determine present and future decisions” (Merriam-Webster Dictionary, 2007), and an educational policy is “a specification of principles and actions, related to educational issues, which are followed or which should be followed and which are designed to bring about desired goals” (Trowler, 2003, p. 95). Who are the policy makers in higher education? For the postsecondary setting, policy makers would include entities and individuals who enact these laws and rules, including academic departments, colleges, institutions, and local, state, and national governments. The goal of educational policies is to lead to desired changes in behavior for participants within the education system. For example, a state-level educational policy may be implemented to help increase the percentage of high school students who go on to pursue a postsecondary education. The goal of this policy is to change the behavior of some high school students who may not be likely to attend college following graduation. As another example, an academic department may design policies to increase the quality of instruction given to undergraduate students. Here, the policy maker (academic department administration) is seeking to alter the actions of faculty in such a way that will lead to gains in instructional quality. Educational policy analysis focuses on how one should evaluate the effectiveness of alternative educational policies when choosing between them. The analysis of policy in higher education—an interdisciplinary field of study—is richly
46 citations
TL;DR: This paper examined the causal link between family background characteristics (parental education and family size) and returns to schooling and found that men raised in larger families have substantially lower returns to education, whereas the combined effects of parental education are more modest.
Abstract: This article examines the causal link between family background characteristics—parental education and family size—and returns to schooling. I implement a model of schooling and earnings with heterogeneous returns to education using data from the Occupational Change in a Generation Survey. I find that men raised in larger families have substantially lower returns to education, whereas the combined effects of parental education are more modest. In addition, like other “supply-side” instrumental variables studies of the causal effect of education, I find two-stage least squares estimates that are larger than the corresponding ordinary least squares estimates. The results suggest an alternative explanation for this phenomenon: constant marginal return to schooling, combined with a negative absolute ability bias and a positive comparative advantage bias.
45 citations
TL;DR: In this article, the authors identify the contribution of agriculture, schooling, and nutrition to economic growth and development over time and across countries, focusing on the roles of improvements in agricultural technology and of the human capital of farmers and farm people.
Abstract: This survey reviews the existing literature, identifying the contribution of agriculture, schooling, and nutrition to economic growth and development over time and across countries. Particular attention is paid to the roles of improvements in agricultural technology and of the human capital of farmers and farm people. Macroeconomic and microeconomic evidence related to the interactions between human capital, productivity and health are explored. Most of the world's growth in population, labor productivity and real income per capita have occurred over the past 250 years. We show that for most countries, development is a process of conversion from primarily agrarian economies to urban industrial and service economies. The evidence is that positive technology shocks to agriculture have played a key role in igniting a transition from traditional to modern agriculture and to long-term economic growth in almost all countries. Improvements in agricultural technologies improve labor productivity and create surplus agricultural labor that can provide workers for the growing urban areas. In some cases, improved nutrition helps raise labor productivity and allows individuals to work for longer hours, which makes human capital investments more attractive. The induced improvements in the skill level of a population have major implications for raising living standards, improving health standards, and altering time allocation decisions. In most currently poor and middle income countries, improved schooling has been more important than improved nutrition or caloric intake in explaining recent economic growth. Nevertheless, the poorest countries of the world continue to have a large share of their labor force in agriculture, and growth cannot occur until they experience their own agricultural transformation.
45 citations