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The causal effect of education on earnings

01 Jan 1999-Handbook of Labor Economics (Elsevier)-pp 1801-1863
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 compare the returns to education between graduates of post secondary institutions who delayed their tertiary education for some time and those that proceeded with no delays and find that those that delayed their education enjoy a premium relative to those that did not, after considering other factors such as experience or labor market connections.
Abstract: We compare the returns to education between graduates of post secondary institutions who delayed their tertiary education for some time and those that proceeded with no delays. Using a unique survey that collects information on a representative cohort of graduates, we are able to estimate the effects of delaying school among successful graduates abstracting from specific macroeconomic conditions at the time of graduation. Our results show that graduates that delayed their education enjoy a premium relative to graduates that did not, even after considering other factors such as experience or labor market connections. These estimates are robust to the possibility of selection in the decision to delay school.

11 citations

Posted Content
TL;DR: Frenette et al. as discussed by the authors examined the gap in educational attainment between Aboriginal and non-Aboriginal youth using the Youth in Transition Survey (YITS), Cohort A, and found that most (90 percent) of the university attendance gap among high school graduates is associated with differences in relevant academic and socio-economic characteristics.
Abstract: Aboriginal people generally have lower levels of educational attainment than other groups in Canada, but little is known about the reasons behind this gap. This study is the second of two by the same author investigating the issue in detail. The first paper (Frenette 2011) concludes that the labour market benefits to pursuing further schooling are generally not lower for Aboriginal people than for non-Aboriginal people. This second paper takes a more direct approach to the subject by examining the gap in educational attainment between Aboriginal and non-Aboriginal youth using the Youth in Transition Survey (YITS), Cohort A. Aboriginal people who live on-reserve or in the North are excluded from the YITS and, thus, from this analysis. The results of the analysis show that most (90 percent) of the university attendance gap among high school graduates is associated with differences in relevant academic and socio-economic characteristics. The largest contributing factor among these is academic performance (especially differences in performance on scholastic, as opposed to standardized, tests). Differences in parental income account for very little of the university attendance gap, even when academic factors are excluded from the models (and thus do not absorb part of the indirect effect of income). Differences in academic and socio-economic characteristics explain a smaller proportion of the gap in high school completion than in university attendance.

11 citations

Posted Content
TL;DR: In this article, the authors introduced a new approach to measure the value of an economy's total human capital wealth, by assuming that the consumption to wealth ratio is constant, and then using household non-human capital wealth data to recover the value as a residual.
Abstract: The value of human capital wealth and its return process are important to quantify in order to study consumption behavior and portfolio allocation. This paper introduces a new approach to measure the value of an economy’s total human capital wealth. By assuming that the consumption to wealth ratio is constant, we exploit aggregate consumption data to recover total wealth, and then use household non-human capital wealth data to recover the value of human capital wealth as a residual. Using U.S. data over the period 1952{2007, we nd that human capital is approximately three-quarters of total wealth in the aggregate economy, and that this ratio is remarkably stable over time. Applying our methodology to a group of OECD countries yields similar results. We estimate the cointegrating relationship between our estimated measure of human wealth and labor compensation (income) to show that our consumption-based approach estimate of human capital is linked to one based on a labor-income approach. We next calculate the returns to human capital and nd them to be as high as equity returns on average but much less volatile; positively correlated with returns on real estate and consumption growth, but negatively correlated to equity returns. Finally, we show that both human capital and equity returns are predictable by human capital’s dividend to price ratio.

11 citations

Journal ArticleDOI
TL;DR: It is found that corrected TTD estimates are significantly different from uncorrected ones, and their effect size exceeds that of an extra year of life, which in turn is moderated by individual comorbidities.
Abstract: We study the effect of ageing, defined as an extra year of life, on health care utilisation. We disentangle the direct effect of ageing, from other alternative explanations such as the presence of comorbidities and endogenous time to death (TTD) that are argued to absorb the effect of ageing (so-called 'red herring' hypothesis). We exploit individual level end of life data from several European countries that record the use of medicine, outpatient and inpatient care and long-term care. Consistently with the 'red herring hypothesis', we find that corrected TTD estimates are significantly different from uncorrected ones, and their effect size exceeds that of an extra year of life, which in turn is moderated by individual comorbidities. Corrected estimates suggest an overall attenuated effect of ageing, which does not influence outpatient care utilisation. These results suggest the presence of 'more than one red herring' depending on the type of health care examined.

11 citations

01 Jan 2010
TL;DR: In this paper, the authors provide a detail description of the formation of individual social capital and the role of education, with an emphasis on education endogeneity and gender differences, and show that increased pressure from the workplace decreases satisfaction with the job, lowers perception of personal happiness and diverts available time or energy away from voluntary participation.
Abstract: Social capital is considered an important asset for individuals, groups, communities and society because it is related to individual health and socio-economic status, and it affects the crime rate, social cohesion, and social welfare. The purpose of this dissertation is to provide a detail description of the formation of individual social capital and the role of education, with an emphasis on education endogeneity and gender differences. Meta-analysis is performed to evaluate the possible sources of the variations in the effect of education on social capital in the relevant literature. The one-factor model and the single treatment model are applied to the data of the National Child Development study in order to quantify the exact impact of education. The empirical findings in this dissertation reveal that schooling variance is a key source of variation in individual social capital outcomes, directly or indirectly. Education posts much higher returns for men than for women on both dimensions of individual social capital: social trust and social participation. The education effect is even negative for women in the study of membership of voluntary groups, whilst there is a strongly positive estimate for men in the studies of social trust and voluntary participation. The study shows that increased pressure from the workplace decreases satisfaction with the job, lowers perception of personal happiness, and diverts available time or energy away from voluntary participation.

11 citations