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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 present a two-equation model of joint outcomes on an individual's decision to binge drink and on his/her annual labor market earnings, and show that binge drinking behavior is quite alcohol-price responsive and is a rational addiction.
Abstract: This paper presents a two-equation model of joint outcomes on an individual’s decision to binge drink and on his/her annual labor market earnings. The primary data source is the 1979 cohort of the National Longitudinal Survey of Youth (NLSY79), 1979–1994. We show that binge drinking behavior is quite alcohol-price responsive and is a rational addiction. A new result is that an individual’s decision to binge drink has a statistically significant negative effect on his/her earnings. Furthermore, we conducted simulations of the short-run and long-run impacts of increasing the alcohol price. They showed that the tendency for an individual to binge drink heavily is reduced significantly, and the reduction is greater in the long-run than short-run simulation. Also, an individual's annual earnings were increased. However, in the structural model, an individual’s earnings have no significant effect on his/her tendency to engage in binge drinking. Our results contradict earlier findings from cross-section evidence that showed increased alcohol consumption raised an individual’s earnings or wages.
41 citations
TL;DR: This article showed that the returns to education in Indonesia generally declined between 1993 and 2007-08, following the large-scale expansion of the education sector, and that the changes were reasonably modest, and sometimes differed between males and females.
Abstract: In 1977, American labour economist Richard Freeman documented a fall in the return to education in the US, and attributed it to the expansion of the country's education sector. This article shows, similarly, that the returns to education in Indonesia generally declined between 1993 and 2007–08, following the large-scale expansion of the sector. The changes, however, were reasonably modest, and sometimes differed between males and females. This suggests that both recent growth in the education sector (which by itself could depress the return to education) and uneven growth across the Indonesian economy (which could differentially increase demand for graduates at various levels of education) have played a role in determining the pattern of change over time in the profitability of education in Indonesia.
41 citations
01 Jan 2010
TL;DR: This article provided an overview for understanding and measuring financial returns to education and discussed measurement difficulties stemming from ability bias, measurement error, and the potential endogeneity of the education decision, along with how some researchers address these concerns.
Abstract: The article provides an overview for understanding and measuring financial returns to education. Measurement difficulties stemming from ability bias, measurement error, and the potential endogeneity of the education decision are discussed, along with how some researchers address these concerns. For developed countries, average annual returns to education tend to be in the neighborhood of 10%, ranging from 5% to 15%, with considerable variation across different individuals and contexts. Returns are increasing over time and tend to be higher for: females as opposed to males; degree or credential holders as opposed to dropouts; general academic streams compared to technical vocational streams; and professional fields like engineering, medicine, business and sciences as opposed to social sciences and humanities and especially fields like fine arts. Social returns or externalities to third-parties are likely substantial, and estimated be in the neighborhood of the private returns of around 10%, effectively doubling the returns.
41 citations
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TL;DR: The authors explored methods for estimating the impact of child labour on student learning and examined issues in sample design, and demonstrated the type of results that can be obtained with two multi-country data sets and made suggestions for future research.
Abstract: Explores methods for estimating the impact of child labour on student learning. Considers various measures of child labour and school performance and examines issues in sample design. Demonstrates the type of results that can be obtained with two multi-country data sets and makes suggestions for future research.
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TL;DR: The authors study the willingness to compete of 588 children and teenagers aged ten to seventeen and show that policy interventions like quotas and preferential treatment help to close down the gender gap without leading to losses in efficiency, during or after a tournament.
Abstract: We study the willingness to compete of 588 children and teenagers aged ten to seventeen. We replicate the gender difference in tournament entry choices usually found in the literature for adults. We then show that policy interventions like quotas and preferential treatment help to close down the gender gap without leading to losses in efficiency, during or after a tournament. Given that differences in competitive behavior are prevalent from an early age, the application of interventions to promote females in competitions may be desirable already at early ages to promote equal chances for women on labor markets later on.
41 citations