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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: This paper examined the extent to which firms pass back the cost of pollution regulation to workers, in the form of lower wages, using a unique matched employer-employee dataset for Shanghai, and found that the reduction in average wages attributable to firms taking measures to control for pollution is between 13.8% and 18.8%.
Abstract: In this study we examine the extent to which firms pass back the cost of pollution regulation to workers, in the form of lower wages, using a unique matched employer-employee dataset for Shanghai. The benefits and costs of pollution regulation in China are important topics to study as China comes under increasing pressure to move from a single-minded focus on energy-driven economic growth to a more balanced approach to economic growth. The benefits of such a shift, particularly in terms of health, are relatively well studied, but the costs are less so. The hip-pocket effect of pollution regulation on workers' wages is particularly important, given that it is likely to influence public support for a more balanced approach. Our main finding is that the reduction in average wages attributable to firms taking measures to control for pollution is between 13.8% and 18.8%, all things being equal.
24 citations
TL;DR: In this paper, the authors estimate returns to schooling in urban Argentina for a 10-year period, and use quantile regression analysis to detect differences in the returns across the distribution.
Abstract: The authors estimate returns to schooling in urban Argentina for a 10-year period. In addition to comparable earnings functions, they also estimate the returns using quantile regression analysis to detect differences in the returns across the distribution. Over time, men in higher quantiles have higher returns to schooling compared with those in the lower quantiles. For women, returns are highest at the lowest quantile. The returns to education increased during the past decade. The authors do not rule out that increased demand for skills is driving the increasing returns over the decade.
24 citations
TL;DR: In this paper, the authors explore the differential exposure to HIV/AIDS epidemic in sub-Saharan Africa as a substantial health shock to both household and community environment and provide evidence on how adverse health conditions affect the transfer of human capital from one generation to the next.
Abstract: This paper provides evidence on how adverse health conditions affect the transfer of human capital from one generation to the next. We explore the differential exposure to HIV/AIDS epidemic in sub-Saharan Africa as a substantial health shock to both household and community environment. We utilize the recent rounds of the Demographic and Health Surveys for 11 countries in sub-Saharan Africa. First, we find that an additional year of maternal education leads to a 0.37-year increase in children’s years of schooling in the developing economies in sub-Saharan Africa. Second, our results show that mother’s HIV status has substantial detrimental effects on inheritability of human capital. We find that the association between infected mothers’ and their children’s human capital is 30 % less than the general population. Finally, focusing only on noninfected mothers and their children, we show that HIV prevalence in the community also impairs the intergenerational human capital transfers even if mother is HIV negative. The findings of this paper are particularly distressing for these already poor, HIV-torn countries as in the future they will have even lower overall level of human capital due to the epidemic.
24 citations
01 Jan 2013
TL;DR: The PIAAC survey of adult skills over the full lifecycle in 22 countries showed that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter as discussed by the authors.
Abstract: Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills
across different economies. International comparisons of earnings analyses rely almost exclusively on
school attainment measures of human capital, and evidence incorporating direct measures of cognitive
skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey
of adult skills over the full lifecycle in 22 countries shows that the focus on early-career earnings leads to
underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation
increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But
this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries,
have returns between 12 and 15 percent, while six are above 21 percent with the largest return being
28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures,
additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in
countries with higher union density, stricter employment protection, and larger public-sector shares.
24 citations
TL;DR: In this article, the authors examine the relationship between education and welfare policies as measures of intervention in this process, and find that there are two pure types of clusters: i) a cluster in which the role of public policy is to promote equality, including countries that are egalitarian in the welfare and the education systems and ii) a group with stratification in both, a group in which there is a proper place for everyone in society, and several mixed clusters.
Abstract: In this Working Document we look at which OECD countries deliberately attempt to reproduce social stratification through educational policies, and which countries put greater emphasis on intervening in the stratification process. First, we examine the relationship between education and welfare policies as measures of intervention in this process: do countries intervene in both education and welfare – driven by a ‘stratification culture’? Or is there a trade-off between intervention in education and welfare, with certain countries prioritising one over the other? Our findings indicate that there are two pure types of clusters: i) a cluster in which: “the role of public policy is to promote equality” including countries that are egalitarian in the welfare and the education systems and ii) a cluster with stratification in both, a cluster in which – “there is a proper place for everyone in society” and several mixed clusters. Second, we consider whether it is the state on the one hand or the market or family on the other hand that provides education and welfare. We found that countries can be grouped into more market-oriented and more ‘etatist’ clusters. Combining the analysis of stratification with the analysis of the market/state boundary, we observe a more complex clustering in groups of less egalitarian and market-oriented countries, less egalitarian market-oriented, egalitarian state-oriented, educational egalitarian state-oriented and educational egalitarian market-oriented countries. We interpret our findings as challenging a one-policy-fits-all approach that advocates education policy reforms designed to increase equal opportunities in education. We argue that the context of each country needs to be considered before the implementation of such policies.
24 citations