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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: There is no evidence of an effect of transitions to marriage on the earnings of unmarried fathers that differs from zero, either for the full sample or subsamples defined by race-ethnic category and baseline cohabitation status.
Abstract: The hypothesis that marriage increases men's earnings has contributed to legislative support for the Healthy Marriage Initiative (HMI). However, previous studies of this phenomenon have not controlled for many relevant characteristics that select men into marriage, nor have they focused on low-income, unmarried fathers—the population targeted by HMI. We use the Fragile Families and Child Wellbeing Study, which measures many previously unobserved confounders, to test for a relationship between marriage and earnings. We use a variety of analytic strategies to control for selection (including differencing and propensity scores) and find no evidence of an effect of transitions to marriage on the earnings of unmarried fathers that differs from zero, either for the full sample or subsamples defined by race–ethnic category and baseline cohabitation status.
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TL;DR: This paper found that reading comprehension skills and fat-free body mass have significantly positive associations with wages, but only brains, and not brawn, is significant when both human capital measures are treated as endogenous.
Abstract: Previous studies report that adult height has significant associations with wages even controlling for schooling. But schooling and height are imperfect measures of adult cognitive skills (“brains”) and strength (“brawn”); further they are not exogenous. Analysis of rich Guatemalan longitudinal data over 35 years finds that proximate determinants - adult reading comprehension skills and fat-free body mass - have significantly positive associations with wages, but only brains, and not brawn, is significant when both human capital measures are treated as endogenous. Even in a poor developing economy in which strength plausibly has rewards, labor market returns are increased by brains, not brawn.
29 citations
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01 Jan 2005TL;DR: The authors evaluate the effect of the German Federal Educational Assistance Act (BAfoeG) on enrolment rates in higher education by exploiting the exogenous variation introduced through a discrete shift in the repayment regulations.
Abstract: We evaluate the effect of the German Federal Educational Assistance Act (BAfoeG) on enrolment rates in higher education by exploiting the exogenous variation introduced through a discrete shift in the repayment regulations. While up to 1990, students receiving assistance had to repay their loans in full, since the BAfoeG reform, 50 percent thereof has been offered as a non-repayable grant. Our results from simple difference-in-difference estimates suggest that student aid is ineffective in raising enrolment rates. Our findings may have important implications for the current debate on the reform of financing higher education in Germany and elsewhere.
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TL;DR: The authors found that students with higher average quantitative graduate records exam (GRE) scores are less likely to attend graduate school whereas students in majors with higher averaged verbal GRE scores are more likely to apply to graduate school.
29 citations
TL;DR: This article examined post-migration educational investment by new immigrants to Canada from two perspectives: first, what are the factors that influence whether a new immigrant invests in postmigration education (PME)? Second, is investment in PME associated with improved earnings?
Abstract: The present study examines post-migration educational investment by new immigrants to Canada from two perspectives. First, what are the factors that influence whether a new immigrant invests in post-migration education (PME)? Second, is investment in PME associated with improved earnings? The results indicate that younger immigrants from “non-traditional” source countries, who are already well educated, fluent in English or French, and worked in a professional or managerial occupation prior to migration are most likely to enroll in PME. But acceptance of previous work experience by Canadian employers lowers the likelihood of investing in PME. Family obligations also reduce the likelihood of participating in PME. Financial limitations are not found to affect participation in PME. The earnings effect of PME is dependent on the type of course undertaken. In the short term, job-related seminars lead to improved earnings growth, while post-secondary courses result in a period of deceased earnings growth. Policy implications are discussed.
29 citations