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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 show that an increase in regional unemployment by 1% decreases the returns to education by 0.005 percentage points, which implies that higher skilled employees are better sheltered from labour market changes with respect to their jobs but encounter larger wage changes than less skilled employees.
Abstract: On the basis of a theoretical model, we argue that higher aggregate unemployment affects individual returns to education. We therefore include aggregate unemployment and an interaction term between unemployment and the individual education level in a standard Mincer equation. Our results show that an increase in regional unemployment by 1% decreases the returns to education by 0.005 percentage points. This implies that higher skilled employees are better sheltered from labour market changes with respect to their jobs but encounter larger wage changes than less skilled employees. Differences in regional unemployment can in addition almost fully explain the observed large differences in regional returns to education. We use representative individual data and regional panel variation in unemployment between different German regions and for different employee groups. We demonstrate that our results are robust with respect to aggregation bias, time lags and potential endogeneity of the unemployment variable.
34 citations
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01 Jan 2006
TL;DR: Two contemporary issues provide reason to focus on national saving and investment: the debate over public pensions, and pensions more generally, in all rich countries; and the large global current account imbalances, conceptually the difference between national savings and domestic investment as mentioned in this paper.
Abstract: Two contemporary issues provide reason to focus on national saving and investment: the debate over public pensions, and pensions more generally, in all rich countries; and the large global current account imbalances, conceptually the difference between national savings and domestic investment. Are we all saving enough to provide adequate retirement income for rapidly ageing populations – especially Americans, whose household savings seems to have disappeared altogether in 2005? And are the countries with large external deficits – notably the United States – mortgaging the income of future generations inappropriately, not to mention courting financial calamity in the meantime?
34 citations
TL;DR: This article investigated the link between position in the birth order and early scholastic ability using matched mother-child data from the National Longitudinal Survey of Youth (1979 cohort, NLSY79) and found that being the firstborn is beneficial even after controlling for (nonlinear) effects of family size and child characteristics.
Abstract: This article investigates the link between position in the birth order and early scholastic ability. Using matched mother–child data from the National Longitudinal Survey of Youth (1979 cohort, NLSY79), I find that being the first-born is beneficial even after controlling for (nonlinear) effects of family size and child characteristics. The verbal ability of first-borns is about one-tenth of a SD higher than for children in the middle of the birth order. There is no evidence that last-borns fare better than intermediate children. The first-born advantage is confirmed by estimates from within-family variation models and I argue that the findings are consistent with the resource dilution hypothesis.
34 citations
TL;DR: In this article, the authors evaluate the effectiveness of Patti Territoriali (Territorial Pacts, TPs) by comparing the economic performance of the municipalities taking part in a TP with a sample of municipalities not involved in the policy.
34 citations
TL;DR: In this article, the authors consider an economy with two language groups, where only agents who share a language can produce together, and they show that the dominant either choose laissez-faire or restrict access to schools in the language of the dominated.
Abstract: We consider an economy with two language groups, where only agents who share a language can produce together. Schooling enhances the productivity of students. Individuals attending a unilingual school end up speaking the language of instruction only, while bilingual schools render
individuals bilingual at the same cost. The politically dominant group(not necessarily the majority) chooses the type(s) of schools accessible to each language group, and then individuals decide whether to attend school. We show that the dominant either choose laissez-faire or restrict access to schools in the language of the dominated. Instead, the dominated favour the use of their own language. Thus, while agents do not derive utility from speaking their mother tongue, language conflicts of the expected type endogenously arise. Democracy (majority rule) always leads to the implementation of a socially optimal education system, while restrictions to the use of the language of the dominated are implemented too often under minority rule. The model is consistent with evidence from Belgium, France, and Finland.
34 citations