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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 propose a novel theory based on health and aging to explain the long-run trends of longer schooling and shorter working life in the US and other developed countries, and calibrate the model and show that it is able to predict the historical trends of schooling and retirement.
Abstract: Workers in the US and other developed countries retire no later than a century ago and spend a significantly longer part of their life in school, implying that they stay less years in the work force. The facts of longer schooling and simultaneously shorter working life are seemingly hard to square with the rationality of the standard economic life cycle model. In this paper we propose a novel theory, based on health and aging, that explains these long-run trends. Workers optimally respond to a longer stay in a healthy state of high productivity by obtaining more education and supplying less labor. Better health increases productivity and amplifies the return on education. The health accelerator allows workers to finance educational efforts with less forgone labor supply than in the previous state of shorter healthy life expectancy. When both life-span and healthy life expectancy increase, the health effect is dominating and the working life gets shorter if the intertemporal elasticity of substitution for leisure is sufficiently small or the return on education is sufficiently large. We calibrate the model and show that it is able to predict the historical trends of schooling and retirement.
22 citations
TL;DR: This paper examined the impact of parental involvement measures on the behavioral outcomes of high-school students, and found that parental involvement led to better child behavioral outcomes at the high school level, and that this effect was strengthened in the instrumental variables results.
Abstract: National Educational and Longitudinal Study 1988 (NELS88) data were used to examine the impact of parental involvement measures on the behavioral outcomes of high-school students. Parents’ general sense of involvement with the community, as well as non-school child-helping groups, were used as instruments for whether these parents were educationally involved with their child. The instrumental variables strategy helped quantify the true effect of parental involvement on own-child behavioral outcomes. The results showed that parental involvement led to better child behavioral outcomes at the high school level, and that this effect was strengthened in the instrumental variables results.
22 citations
TL;DR: The authors found that the length of incarceration is positively associated with earnings and employment, even though these effects attenuate over time, and the positive effects are stronger for individuals convicted of economically motivated and less violent crimes than for those convicted of violent crimes (such as person-related offenses).
Abstract: The sharp rise in U.S. incarceration rates has heightened long-standing concerns among scholars and policymakers that lengthy incarceration permanently harms the future labor market outcomes of prisoners. If true, then lengthy prison sentences will not only punish criminals for crimes committed, but will also make it far more difficult for ex-prisoners to reenter society as productive citizens. To investigate this claim I examine how increase in duration of incarceration affects subsequent earnings and employment. Comparing long-serving prisoners with short-serving ones in the Illinois state prison system, I find that the length of incarceration is positively associated with earnings and employment, even though these effects attenuate over time. The positive effects are stronger for individuals convicted of economically motivated and less violent crimes (such as property- and drug-related offenses) than for those convicted of violent crimes (such as person-related offenses). The effect is also stronger for prison entrants with self-reported drug addiction problems. The deterrent effect of lengthy incarceration and rehabilitation during incarceration are possible reasons for this positive effect. However, because this paper analyzes men who served less than four years in Illinois prison and excludes the population of men who served their terms exclusively in jail, readers should be cautious about generalizing findings of this paper. © 2011 by the Association for Public Policy Analysis and Management. Language: en
21 citations
TL;DR: It is predicted that Oportunidades will increase future mean earnings but have only modest effects on poverty rates and earnings inequality.
Abstract: Previous empirical research has shown that Mexico’s Oportunidades program has succeeded in increasing schooling and improving health of disadvantaged children. This paper studies the program’s potential longer-term consequences for the poverty and inequality of these children. It adapts methods developed in DiNardo, Fortin and Lemieux (1996) and incorporates existing experimental estimates of the program’s effects on human capital to analyze how Oportunidades will affect future earnings of program participants. We nonparametrically simulate earnings distributions, with and without the program, and predict that Oportunidades will increase future mean earnings but have only modest effects on poverty rates and earnings inequality.
21 citations
TL;DR: In a naive regression, which does not account for the potential reverse causality and omitted variables, the coefficient of the propensity to migrate was found to increase with an extra year of schooling.
Abstract: Does an extra year of schooling augment one's propensity to migrate? In a naive regression, which does not account for the potential reverse causality and omitted variables, the coefficient of educ...
21 citations