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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 article, the authors used the instrumental variable approach proposed by Hausman and Taylor to assess the direction and size of the bias that affects standard OLS estimation, when some of the wage determinants are endogenous.
Abstract: Purpose – One of the major contributions of the literature on human capital has been to demonstrate the role of schooling as a determinant of wages. However, the exact size of the effect on wages and how it should be estimated remain a source of both theoretical and empirical debate. This paper seeks to provide empirical evidence on the returns to education for the Spanish labor market.Design/methodology/approach – The paper uses the instrumental variable approach proposed by Hausman and Taylor to assess the direction and size of the bias that affects standard OLS estimation, when some of the wage determinants are endogenous.Findings – The results suggest that the returns to schooling are substantially higher once endogeneity is taken into account, rising from around 6 percent for each additional year of schooling to about 12 percent when the effect is estimated via instrumental variables. This is in line with research for other countries. Evidence is also found of endogeneity in the effect of job seniori...
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TL;DR: In this paper, the authors investigate the pattern of benefits from education along the earnings distribution and compare this pattern between general and vocational/technical education in Singapore, with a particular focus on male-female differences.
Abstract: Purpose – This study sets out to investigate the pattern of benefits from education along the earnings distribution and compares this pattern between general and vocational/technical education in Singapore, with a particular focus on male‐female differences.Design/methodology/approach – Quantile regression methodology is used, which allows for estimates of education benefits that differentiate the contribution of the quantity and quality of education along the earnings distribution. The quantile regression estimates highlight where in the income/ability distribution the impact of education is more pronounced.Findings – Finds that, while the pattern of returns to an additional year of education for general education follows that of other high income countries, exhibiting increasing returns to education as one goes from lower to higher income quantiles, the returns to vocational education exhibit much lower heterogeneity. Based on the findings, the vocational education system in Singapore has served women w...
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TL;DR: The authors argued that education can be a mediator of the origins-destinations associations as a result of factors that have little to do with the effects of schools and schooling, such as the sorting into schooling on early skills and the independent mediating impact of education net of early skills.
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TL;DR: In this paper, the authors present a case for introducing an income contingent loan to the public vocational education and training (VET) sector, arguing that these arrangements may lead to sub-optimal educational outcomes to the extent that prospective students reject a VET education on the basis of short-term financial constraints.
Abstract: The public vocational education and training (VET) system is now one of the few areas in Australia's tertiary education system where students are required to pay up-front fees without access to loan assistance. These arrangements may lead to sub-optimal educational outcomes to the extent that prospective students reject a VET education on the basis of short-term financial constraints. In this paper we present a case for introducing an income contingent loan to the VET sector. The economic rationale is similar to that for higher education, and the Higher Education Contribution Scheme (HECS) provides a useful template. Using data from the first three waves of the Household Income and Labour Dynamics in Australia (HILDA) survey, we establish that there are indeed significant private returns to VET qualifications. An income contingent loan is argued to enhance access to these benefits, and the collection streams are analysed for different qualifications. The form that an income contingent loan might take for VET is considered, as are the implications for the Commonwealth Government with respect to potential subsidies associated with the design parameters.
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TL;DR: This article examined whether there are educational premiums on the quantity side of the labor market and found that the lower the level of educational attainment, the more volatile the employment ratio, and the volatility of employment for female high school dropouts increased over time even as the economy became less volatile.
Abstract: This article examines whether there are educational premiums on the quantity side of the labor market. We document four findings: (1) Trend employment patterns shifted for most educational levels post-1977; (2) the lower the level of educational attainment, the more volatile the employment ratio; (3) the volatility of employment for female high school dropouts increased over time even as the economy became less volatile; and (4) since 1984, the responses of skilled and unskilled employment to the business cycle have become more alike. This latter finding is consistent with a reduced degree of capital-skill complementarity during this period.
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