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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.
Citations
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Journal ArticleDOI
TL;DR: Li et al. as mentioned in this paper used a biographical dataset of Chinese Communist Party Central Committee (CC) members from 1945 to 1982 to investigate the tradeoff faced by Mao Zedong in selecting his senior officials.
Abstract: Although competent (vs mediocre) subordinates, while better contributors to dictator success, are also more prone to treason, it remains unclear empirically how (and even whether) dictators address this loyalty–competence tradeoff. To throw light on this issue, we use a biographical dataset of Chinese Communist Party Central Committee (CC) members from 1945 to 1982 to investigate the tradeoff faced by Mao Zedong in selecting his senior officials. Our results suggest that during the Cultural Revolution (1966–1976), the foundation and consolidation of the new regime lowered the payoff from subordinate competence, leading to the purging of competent CC members and their replacement by mediocre substitutes. Additional analyses of the competing mechanisms proposed by different theoretical models indicate further that capable young subordinates are more likely to be purged, possibly because they have more outside options (e.g., future hiring by the dictator’s successor) and, hence, expend less effort on loyalty.

10 citations

Journal ArticleDOI
TL;DR: In this article, the authors demonstrate the existence of substantial spatial variations in private and aggregate returns to human capital, indicating that development policies based on stimulating the accumulation of education differ in effectiveness.
Abstract: It is thought that policies aimed at encouraging the accumulation of human capital in less productive regions can constitute a key factor in development. However, the effectiveness of this policy depends in large part on each region's capacity to give returns to human capital. The aim of this article is to demonstrate the existence of substantial spatial variations in private and aggregate returns to human capital, indicating that development policies based on stimulating the accumulation of education differ in effectiveness. Results for the Spanish regions suggest that regional variations in social returns are greater than those in private returns.

10 citations

01 Jul 2006
TL;DR: In this article, the authors focus on skill development in the early years, examining how we might best combine family inputs and public policy to invest optimally in our future human capital, and conclude that mothers' intra-family bargaining power is decisive for family investments and that universal child care is key if our goal is to arrive at a strong mean with minimal variance.
Abstract: Individuals' life chances in the future will very much depend on how we invest in our children now. An optimal human capital model would combine a high mean with minimal variance of skills. It is well-established that early childhood learning is key to adult success. The impact of social origins on child outcomes remains strong, and the new role of women poses additional challenges to our conventional nurturing approach to child development. This paper focuses on skill development in the early years, examining how we might best combine family inputs and public policy to invest optimally in our future human capital. I emphasize three issues: one, the uneven capacity of parents to invest in children; two, the impact of mothers' employment on child outcomes; and three, the potential benefits of early pre-school programmes. I conclude that mothers' intra-family bargaining power is decisive for family investments and that universal child care is key if our goal is to arrive at a strong mean with minimal variance.

10 citations

Journal ArticleDOI
TL;DR: In this paper, the effect of training participation on employees' retention in the training process was analyzed in an extensive German linked-employer-employee data set with detailed information on training history (WeLL-ADIAB).
Abstract: This paper analyses the effect of training participation on employees’ retention in the training company. It for the first time empirically combines the human capital and the monopsony theory by jointly controlling for the portability, visibility, and credibility of training. Based on an extensive German linked-employer-employee data set with detailed information on training history (WeLL-ADIAB), we show that training increases employees’ retention. We compare the probability to stay at the same employer between training participants and accidental training non-participants (those who could not participate in planned training on the basis of exogeneous reasons). Higher portability of general human capital contents and visibility of training induced by training certificates however reduce the retention effect of training. Retention is further reduced when training is credibly provided and certified by external institutions, the full training effect on retention is still positive, however. We are careful to control for endogeneity of training participation in retention equations, unobserved time-invariant effects, and extensive individual and employer characteristics including wage increases and general job satisfaction.

10 citations

01 Jan 2016
TL;DR: In this paper, the causal effect of marital status and computer usage on wages was analyzed using data from the CPS, NLSY and a data set of identical twins, and new econometric specifications were applied to these data which indicated that marital status was not important causal determinants of earnings, even after adjustments are made for measurement error and within-twin differences in ability.
Abstract: This analysis uses several identification strategies and data sources to controlfor individual ability and determine the causal effect of marital status and computer usage on wages. Although data from the CPS, NLSY and a data set of identical twins show that there are large cross-sectional effects of these variables, new econometric specifications are applied to these data which indicate that marital status and computer usage are not important causal determinants of earnings, even after adjustments are made for measurement error and within-twin differences in ability.

10 citations