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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 article studied the role of various frictions to the "high return to schooling" and found that the probability of dropping out of college increases strongly with ability, and that ability selection accounts for about 40% of the measured college wage premium.
Abstract: We study two long-standing questions: (i) What part of the measured return to education is due to selection? (ii) The ex post return to schooling is higher than the return to most financial assets. How large are the contributions of various frictions to the "high" return to schooling? We focus in particular on the roles of college dropout risk, borrowing constraints, and learning about ability. We develop and calibrate a model of school choice. Key model features are: (i) ability heterogeneity, (ii) students learn about their abilities while in college, (iii) borrowing constraints, (iv) dropping out of college is a choice. We find that the probability of graduating from college increases strongly with ability. Most college dropouts are students of intermediate abilities who try college in part to learn about their abilities and in part because of the option value of receiving a large earnings gain upon graduation. Ability selection accounts for about 40% of the measured college wage premium.
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TL;DR: In this paper, the authors analyzed the dynamics of rate of returns for postgraduate education and the determinants of wage premiums for post-graduate labor, especially for the impact of higher education expansions, in terms of quantity and quality, since the late 1990s in Taiwan.
Abstract: This paper analyzes the dynamics of rate of returns for postgraduate education and the determinants of wage premiums for postgraduate labor, especially for the impact of higher education expansions, in terms of quantity and quality, since the late 1990s in Taiwan. Utilizing quasi-panel data over the 1990–2004 period and employing the double fixed effect model, the empirical results first confirm the existence of wage premiums for workers with postgraduate degrees. However, the analysis on the dynamics of wage premiums finds that it ranged from only 1.40 to 11.67% and decreased sharply in 2004, indicating that the pecuniary reward for postgraduate qualification seems not to be as high as expected. Along with the rapid expansion of higher education, the concern about its negative impact on rate of returns to education is witnessed in this study. The sharp increase in the supply of postgraduate labors appears to have a negative impact on an individual’s wage premium. Similarly, a decline in the postgraduate labor quality along with higher education expansion has contributed to a negative wage effect.
16 citations
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TL;DR: Prebisch et al. as discussed by the authors present a teoria del desarrollo en los albores del S iglo X X I, evento conm em orativo del centenario del nacimiento de D on Raul Prebisch, CEPAL, Santiago de Chile, 28 and 29 de agosto, 2001.
Abstract: Preparado para el Seminario “La teoria del desarrollo en los albores del S iglo X X I”, evento conm em orativo del centenario del nacim iento de D on Raul Prebisch, CEPAL, Santiago de Chile, 28 y 29 de agosto, 2001. Las opiniones expresadas en este docum ento son de exclusiva responsabilidad de los autores y no reflejan necesariamente la posicion oficial del Banco Interamericano de Desarrollo o de sus paises miembros. Los autores agradecen a Cesar Bouillon por sus comentarios.
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TL;DR: In this paper, the authors assess the evolution of output and productivity in the Greek banking industry for the period 1990-2006 and assess the effect of labor quality on banks' productivity and the contribution of total factor productivity to bank output growth.
15 citations
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TL;DR: In this paper, the consequences of teenage motherhood on schooling and subsequent adult wages are estimated using data from the NCDS and they find that teenage childbearing decreases the probability of post-16 schooling by 18% to 24%.
Abstract: In this paper, we estimate the consequences of teenage motherhood on schooling and subsequent adult wages. The common wisdom states that teenage childbearing, by competing for time, reduces schooling and labour market experience, thus reducing adult wages. However, the decisions to have a child as a teenager and to quit school at 16 might be endogenous. In order to design an effective policy reducing the negative impact of teenage pregnancy, it is important to study its impact in the long run. Using data from the NCDS, we find that teenage childbearing decreases the probability of post-16 schooling by 18% to 24%. This negative effect on schooling ranges from 7% to 22% when accounting for unobserved heterogeneity. Based on the lower estimates, the effect of childbearing on schooling may have been previously overstated. However, the long-term consequences of childbearing on adult work experience and wages are drastic. Experience is reduced by at least 2.5 years, and the pay differential at age 33 ranges from 12% to 52%. Teenage pregnancy appears to have long-term consequences. Government policy aiming to encourage participation in the labour market may be an efficient way to reduce these scarring effects.
15 citations