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The causal effect of education on earnings

01 Jan 1999-Handbook of Labor Economics (Elsevier)-pp 1801-1863
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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Journal Article•
TL;DR: It is demonstrated that the policy effects differ by social background and hence provide identification across cohorts but also within cohort, and modest but heterogenous positive effects of maternal education on birth weight are found.
Abstract: Low birth weight has considerable short and long-term consequences and leads to high costs to the individual and society even in a developed economy Low birth weight is partially a consequence of choices made by the mother pre- and during pregnancy Thus policies affecting these choices could have large returns Using British data, maternal education is found to be positively correlated with birth weight We identify a causal effect of education using the 1947 reform of the minimum school leaving age Change in compulsory school leaving age has been previously used as an instrument, but has been criticised for mostly picking up time trends Here, we demonstrate that the policy effects differ by social background and hence provide identification across cohorts but also within cohort We find modest but heterogenous positive effects of maternal education on birth weight with an increase from the baseline weight ranging from 2% to 6%

41 citations

Journal Article•DOI•
TL;DR: This article explored the relationship between earnings, education, and fixed-term contracts using data from the 1997 British Social Attitudes Survey and found that the log hourly wage of workers employed under such contracts is approximately thirteen per cent lower than that of their 'permanent' counterparts, even after controlling for a plethora of personal and job characteristics.
Abstract: We explore the relationship between earnings, education, and fixed-term contracts using data from the 1997 British Social Attitudes Survey. We find that the log hourly wage of workers employed under such contracts is approximately thirteen per cent lower than that of their 'permanent' counterparts, even after controlling for a plethora of personal and job characteristics. Standard decompositions indicate that the vast majority of this differential (more than 70 per cent) is attributable to price effects, which may reflect discrimination the part of employer. Such findings may, therefore, suggest that employment protection is appropriate for individuals employed under fixed-term contracts.

41 citations

Posted Content•
TL;DR: The authors found that well-informed individuals are five times more responsive to pension incentives than the average individual when knowledge is ignored and that the ill-informed individual do respond to their own misperception of the incentives, rather than being unresponsive to any incentives.
Abstract: This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives. We find that well-informed individuals are five times more responsive to pension incentives than the average individual when knowledge is ignored. We further find that the ill-informed individuals do respond to their own misperception of the incentives, rather than being unresponsive to any incentives.

41 citations

Journal Article•DOI•
Todd Gabe1•
TL;DR: This paper examined the effects of knowledge about a wide variety of subjects on the wages and salaries of U.S. workers and found that knowledge about topics such as medicine and dentistry, engineering and technology, and production and processing has a positive effect on individual earnings, whereas high knowledge in the areas of food production and personnel and human resources is not rewarded in the labor market.
Abstract: This paper examines the effects of knowledge about a wide variety of subjects on the wages and salaries of U.S. workers. Knowing a lot about topics such as medicine and dentistry, engineering and technology, and production and processing has a positive effect on individual earnings, whereas high knowledge in the areas of food production and personnel and human resources is not rewarded in the labor market. Spillover effects, where the share of metropolitan area employment in high-knowledge occupations enhances earnings, were uncovered primarily in subjects related to producer services and information technology.

41 citations

Journal Article•DOI•
TL;DR: This paper found evidence that people with higher education are more likely to be happier, on average, than their less educated counterparts starting in their early to mid-30s, and they also found that the extent to which education makes an individual happy depends on their current age.
Abstract: Recent research has documented a negative relationship between education and happiness. We test the hypothesis that the extent to which education makes an individual happy depends on their current age in life. We find suggestive evidence that people with higher education are more likely to be happier, on average, than their less educated counterparts starting in their early to mid-30s.

40 citations