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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 found that with the student's own ability and achievement held constant, a student is much less likely to remain in school if attending a low quality school rather than a high quality school, and individually rational behavior suggests that common arguments about a tradeoff between quality and access to schools may misstate the real issue and lead to public investment in too little quality.
Abstract: School quality and grade completion by students are shown to be directly linked. Unique panel data on primary school–age children in Egypt permit estimation of behavioral models of school leaving that incorporate output‐based measures of school quality. With the student’s own ability and achievement held constant, a student is much less likely to remain in school if attending a low‐quality school rather than a high‐quality school. This individually rational behavior suggests that common arguments about a trade‐off between quality and access to schools may misstate the real issue and lead to public investment in too little quality.
199 citations
TL;DR: In this article, the authors develop models of optimal linear and non-linear income taxation with endogenous human capital formation to explore optimal education subsidies, which ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies.
199 citations
TL;DR: Genomic causation is described from a counterfactualist perspective, which makes its complexity plain and highlights the distinction between identifying causes and substantiating explanations.
Abstract: Accumulating evidence from behavioral genetics suggests that the vast majority of individual-level outcomes of abiding sociological interest are genetically influenced to a substantial degree. This raises the question of the place of genetics in social science explanations. Genomic causation is described from a counterfactualist perspective, which makes its complexity plain and highlights the distinction between identifying causes and substantiating explanations. For explanation, genomic causes must be understood as strictly mediated by the body. One implication is that the challenge of behavioral genetics for sociology is much more a challenge from psychology than biology, and a main role for genetics is as a placeholder for ignorance of more proximate influences of psychological and other embodied variation. Social scientists should not take this challenge from psychology as suggesting any especially fundamental explanatory place for either it or genetics, but the contingent importance of genetic and psychological characteristics is itself available for sociological investigation.
198 citations
TL;DR: The authors showed that differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and differences in the learning ability account for the bulk of the variation in the present value of earnings across agents.
198 citations
TL;DR: In this article, the effects of training on industrial productivity have been investigated using a question that has been asked consistently over time in the Labour Force Survey (LFS) and a variety of panel data techniques.
Abstract: There is a vast empirical literature of the effects of training on wages that are taken as
an indirect measure of productivity. This paper is part of a smaller literature on the
effects of training on direct measures of industrial productivity. We analyse a panel of
British industries between 1983 and 1996. Training information (and other individual
productivity indicators such as education and experience) is derived from a question that
has been asked consistently over time in the Labour Force Survey. This is combined
with complementary industry-level data sources on value added, wages, labour and
capital. We use a variety of panel data techniques (including system GMM) to argue that
training significantly boosts productivity. The existing literature has underestimated the
full effects of training for two reasons. First, it has tended to treat training as exogenous
whereas in reality firms may choose to re-allocate workers to training when demand (and
therefore productivity) is low. Secondly, our estimates of the effects of training on wages
are about half the size of the effects on industrial productivity. It is misleading to ignore
the pay-off firms take in higher profits from training. The effects are economically large.
For example, raising the proportion of workers trained in an industry by 5 percentage
points (say from the average of 10% to 15%) is associated with a 4 per cent increase in
value added per worker and a 1.6 per cent increase in wages.
196 citations