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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 paper, the authors developed a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem, and found that a large part of growth in labour quality is caused by shifts in the distribution of unobservability worker characteristics.
Abstract: The standard economy-wide indices of labour quality (or human capital) largely ignore the role of unobservable worker characteristics. In this article, we develop a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991 to 2006, we find that a large part of growth in labour quality is caused by shifts in the distribution of unobservable worker characteristics. The overall index differs little from the standard indices, but contributions to growth attributed to education and age are corrected downwards.
25 citations
TL;DR: The authors discuss the recent upsurge in research on the economics of education that has occurred, especially in Europe, and discuss the reasons for the increased interest and present some examples from my recent research in the area.
Abstract: In this paper (my keynote talk from the 2006 ESPE conference), I discuss the recent upsurge in research on the economics of education that has occurred, especially in Europe. I discuss the reasons for the increased interest and present some examples from my recent research in the area. The paper concludes that the increased research interest seems likely to be sustained for some time to come.
25 citations
TL;DR: In this paper, the authors consider sieve instrumental variable quantile regression (IVQR) estimation of functional coefficient models where the coefficients of endogenous regressors are unknown functions of some exogenous covariates.
25 citations
TL;DR: This article conducted large field experiments with major U.S. retailers and brokerages, each reaching millions of customers and collectively representing $2.8 million in advertising expenditure, revealing that measuring the returns to advertising is exceedingly difficult.
Abstract: Twenty-five large field experiments with major U.S. retailers and brokerages, each reaching millions of customers and collectively representing $2.8 million in advertising expenditure, reveal that measuring the returns to advertising is exceedingly difficult. The median confidence interval on ROI is over 100% wide, the smallest exceeds 50%. Detailed sales data show that, relative to the per capita cost of the advertising, individual-level sales are incredibly volatile; a coefficient of variation of 10 is common. Hence, informative advertising experiments can easily require more than ten million person-weeks, making experiments costly and potentially infeasible for many firms. Despite these unfavorable economics, randomized control trials represent progress by injecting new, unbiased information into the market. The statistically small impact of profitable advertising amid such noise means that selection bias is a crippling concern for widely-employed observational methods. We discuss how these biases and weak informational feedback from experiments fundamentally impact both advertisers and publishers.
25 citations
TL;DR: Following the Civil Rights Movement and the “quiet revolution” in women's work over the years from 1950 to 1970, women and minorities increasingly joined the auditing profession while the...
Abstract: Following the Civil Rights Movement and the “quiet revolution” in women's work over the years from 1950 to 1970, women and minorities increasingly joined the auditing profession while the...
25 citations