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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: The authors found that item nonresponse provides an important measure of cognitive and non-cognitive ability that is contained on every survey, which is consistent with previous work showing that Conscientiousness and IQ are positively associated with longevity.
Abstract: What survey respondents choose not to answer (item nonresponse) provides a useful task based measure of cognitive ability (e.g., IQ) and non-cognitive ability (e.g., Conscientiousness). Using the German Socio-Economic Panel (SOEP) and the National Longitudinal Survey of Youth 1997 (NLSY97), we find consistent correlation between item nonresponse and traditional measures of IQ and Conscientiousness. We also find that item nonresponse is more strongly correlated with earnings in the SOEP than traditional measures of either IQ or Conscientiousness. We also use the Survey of Income and Program Participation (SIPP) Gold Standard, which has no explicit measure of either cognitive or non-cognitive ability, to show that item nonresponse predicts earnings from self-reported and administrative sources. Consistent with previous work showing that Conscientiousness and IQ are positively associated with longevity, we document that item nonresponse is associated with decreased mortality risk. Our findings suggest that item nonresponse provides an important measure of cognitive and non-cognitive ability that is contained on every survey.
21 citations
TL;DR: In this article, the authors estimate the incidence of educational mismatch in Italy and the return to investment in education, controlling for employees' ability, which is measured directly through the assessment of required and provided skills.
Abstract: Purpose – The purpose of this paper is to estimate the incidence of educational mismatch in Italy and the return to investment in education, controlling for employees’ ability. Contrary to most existing studies, the heterogeneity of individual performance is measured directly through the assessment of required and provided skills.Design/methodology/approach – Based on original data including over 3,600 face‐to‐face interviews, this paper appraises the incidence of self‐assessed educational mismatch in the Italian private sector and estimates wage models of the economic returns to educational mismatch, skill requirements and provided skills.Findings – In Italy, under‐educated employees outnumber over‐educated ones and returns to required education and over‐education are lower than in other industrialised countries. Individual heterogeneous ability, as captured by individual skills, is a significant determinant of wage, although the inclusion of direct measures of required and provided skills does not subst...
21 citations
TL;DR: In this article, a survey of the literature on internal labor markets is presented, focusing on two branches: wage and promotion dynamics and human-resource practices, and the authors show how a deeper understanding of internal-labor-market phenomena can be derived from a close partnering of empirical and theoretical research.
Abstract: A number of branches of the literature on internal labor markets have matured to the point that there is now a healthy two-way interaction between theory and empirical work. In this survey I consider two of these branches: i) wage and promotion dynamics; and ii) human-resource practices. For each case I describe the empirical and theoretical literatures and also discuss what we can learn by paying careful attention to how theoretical and empirical findings are related. In addition to surveying the literatures on these two topics, my goal is to show how a deeper understanding of internal-labor-market phenomena can be derived from a close partnering of empirical and theoretical research.
21 citations
TL;DR: Hanushek et al. as mentioned in this paper present a qualitativ hochwertigere systematisch Bildung with geringerer Arbeitslosigkeit, hoherem Erwerbseinkommen, and a volkswirtschaftlichem Wachstum einher.
Abstract: Unterschiedliche Lebensverlaufe der Menschen lassen sich zu einem gehorigen Teil darauf zuruckfuhren, ob sie eine qualitativ hochwertige Bildung erfahren haben oder nicht. So geht langere und qualitativ hochwertigere Bildung systematisch mit geringerer Arbeitslosigkeit, hoherem Erwerbseinkommen und hoherem volkswirtschaftlichem Wachstum einher (vgl. Hanushek/Wosmann 2008). Insofern konnen Bildungsausgaben als Investitionen verstanden werden, die in Zukunft greifbare Ertrage bringen.
20 citations
TL;DR: In this article, a postsecondary degree is often held up as the one sure path to financial success. But is that true regardless of institutional quality, discipline studied, or individual characteristics?
Abstract: A postsecondary degree is often held up as the one sure path to financial success. But is that true regardless of institutional quality, discipline studied, or individual characteristics? Is a college degree always worth the cost? Students deciding whether to invest in college and what field to study may be making the most important financial decision of their lives. The return to education varies greatly by institutional quality, discipline, and individual characteristics. Estimating the returns for as many options as possible, and making that information as transparent as possible, are paramount in helping prospective students make the best decision.
20 citations