Posted Content•
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.
Citations
More filters
TL;DR: In this article, a Heckman selection model with endogenous covariates was developed to measure the composition of the fully observed sample with respect to unobservables, which can be used to estimate the female workforce composition.
Abstract: In this paper, we develop a Heckman selection model with endogenous covariates. Estimation of this model is easy and can be done within any econometrics software which supports maximum likelihood estimation of the Heckman selection model. The most important benefit of our model is that it provides an easy-to-interpret measure of the composition of the fully observed sample with respect to unobservables. As an example, we apply our model to the study of the composition of the female full time full year workforce, as has been done by Mulligan and Rubinstein (Q J Econ 123:1061–1110, 2008). We find that their conclusion that the female workforce was negatively selected in the late 1970s is robust to accounting for the potential endogeneity of education in a Heckman selection model. However, we find that accounting for endogeneity leads to a huge increase in the estimated returns to education.
17 citations
Posted Content•
TL;DR: In this article, the authors extend methodologies from their previous research to provide estimates of the long-run trend rate of labor force participation (LFP) based on data before the Great Recession (before 2008).
Abstract: The authors extend methodologies from their previous research to provide estimates of the long-run trend rate of labor force participation (LFP) based on data before the Great Recession (before 2008). Their models suggest that the actual LFP rate as of the third quarter of 2014 is 0.2 to 1.2 percentage points lower than what would have been expected before the recession started, with their preferred model estimating the gap at the high end of this range. Accounting for unemployment rates of recent years, their models for the trend LFP rate place the actual LFP rate between 0 and 0.8 percentage points below expectations, again with their preferred model estimating the gap at the high end. Their LFP results imply that the natural rate of unemployment may be lower than is often assumed (by as much as 0.6 percentage points since 2000) and that the long-run trend in payroll employment growth is expected to move substantially lower (to under 50,000 jobs per month) through 2020.
17 citations
TL;DR: In this paper, the authors investigated whether general formal education still helps youth avoid situations of unemployment and inactivity in favor of other labour force statuses (dependent employment, self-employment, education) across EU countries over the period 2006-2010.
17 citations
TL;DR: The authors combine the augmented Solow model with the Mincer equation to derive a specification that identifies an education externality within a production function framework, which is consistent with observed levels education subsidies.
Abstract: We combine the augmented Solow model with the Mincer equation to derive a specification that identifies an education externality within a production function framework. The previous empirical literature has not reached a consensus about the size of the education externality, which is given by the difference between the microeconomic and the macroeconomic return to education. Relative to our benchmark value that is based on a parameterization of the derived specification, we find that the estimated education externality is too large when the empirical model is not properly restricted, and appears to be absent when all control variables of the empirical model are properly accounted for. We note that the absence of an education externality would be inconsistent with observed levels education subsidies.
17 citations
Journal Article•
TL;DR: In this article, the authors used a dynamic microsimulation model developed for Ireland to simulate the impact of both an income contingent loan system (ICL) and a graduate tax system from a fiscal and redistributional viewpoint and analyse the repayment length under the former system.
Abstract: With increasing numbers of young people participating in higher education in Ireland and a heavy reliance of higher education institutions on State funding, the introduction of an alternative finance system for Ireland has been muted over the past number of years. However, no study has been conducted to gauge the potential impact of such measures. In this paper we utilise a dynamic microsimulation model developed for Ireland to simulate the impact of both an income contingent loan system (ICL) and a graduate tax system from a fiscal and redistributional viewpoint and to analyse the repayment length under the former system. Our results suggest that an ICL system could be more equitable, while the graduate tax system could be a better alternative from a fiscal viewpoint. The results also illustrate the importance of the interest rate attached to any future student loan system within Ireland from a fiscal viewpoint
17 citations