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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, a wider definition covering all persons with migration background was used to analyze the earnings prospects of persons living in Germany, and the results showed that persons with a migration background have similar earnings prospects to foreigners.
Abstract: Less than half of the people with migration background living in Germany possess foreign citizenship. Hence, using citizenship to analyze economic issues of immigration may be problematic for two reasons. On the one hand, a quite substantial share of persons with migration background is neglected in the group of interest, and, on the other hand, the reference group (native Germans) may be contaminated by effects from naturalized immigrants. This paper utilizes a wider definition covering all persons with migration background to analyze the earnings prospects. To shed light on differences to the common use of citizenship, estimates are presented in comparison to foreigner and German citizens. The results show that persons with migration background have similar earnings prospects to foreigners. Moreover, earnings prospects for native Germans do not differ much from those of German citizenship. Therefore, using citizenship to approximate natives and non-natives when analyzing earnings issues seems to be reasonable. A second question of the paper is whether degrees obtained in Germany lead to better earnings prospects compared to degrees obtained abroad for persons with migration background. Independently of gender and skill level, the estimates affirm higher earnings to educational attainment in Germany.
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TL;DR: In this paper, the effect of human capital on individual earnings and earnings differences in Germany, France and Italy, three developed countries in Western Europe with similar conservative welfare regimes but with important differences in their education systems is investigated.
Abstract: The aim of this paper is to investigate, from a generational perspective, the effect of human capital on individual earnings and earnings differences in Germany, France and Italy, three developed countries in Western Europe with similar conservative welfare regimes but with important differences in their education systems. Income inequalities between and within education levels are explored using a two-stage probit model with quantile regressions in the second stage. More precisely, drawing upon 2005 EU-SILC data, returns on schooling and experience are estimated separately for employees and self-employed full-time workers by means of Mincerian earnings equations with sample selection; the sample selection correction accounts for the potential individual self-selection into the two labour force types. Although some determinants appear to be relatively similar across countries, state-specific differentials are drawn in light of the institutional features of each national context. The study reveals how each...
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TL;DR: This paper found that individuals with high levels of psychopathic personality traits were more likely to have lower household incomes and to be fired more frequently than individuals with lower levels of personality traits, and that these personality traits are negatively associated with household debt.
Abstract: A wealth of research has revealed that psychopathy and psychopathic personality traits are associated with criminal involvement. Comparatively less research, however, has examined whether psychopathic personality traits influence economic outcomes in adulthood. The current study addresses this gap in the literature by analyzing data drawn from the National Longitudinal Study of Adolescent Health. The results of the analyses indicate that psychopathic personality traits are negatively related to a number of economic outcomes, including household income and employment history measures. Individuals with high levels of psychopathic personality traits were found to have lower household incomes and to be fired more frequently than individuals with lower levels of psychopathic personality traits. Unexpectedly, psychopathic personality traits were also found to be negatively associated with household debt. There was also some evidence that the effect of psychopathic personality traits was moderated by intelligenc...
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TL;DR: In this paper, the authors argue that there is no trade-off between equity and efficiency at early ages of human development but there is a substantial tradeoff at later ages, and that later remediation of skill deficits acquired in early years is often ineffective.
Abstract: Trends in skill bias and greater turbulence in modern labor markets put wages and employment prospects of unskilled workers under pressure. Weak incentives to utilize and maintain skills over the life-cycle become manifest with the ageing of the population. Reinvention of human capital policies is required to avoid increasing welfare state dependency among the unskilled and to reduce inefficiencies in human capital formation. Policy makers should acknowledge strong dynamic complementarities in skill formation. Investments in the human capital of children should expand relative to investment in older workers. There is no trade-off between equity and efficiency at early ages of human development but there is a substantial trade-off at later ages. Later remediation of skill deficits acquired in early years is often ineffective. Active labor market and training policies should therefore be reformulated. Skill formation is impaired when the returns to skill formation are low due to low skill use and insufficient skill maintenance later on in life. High marginal tax rates and generous benefit systems reduce labor force participation rates and hours worked and thereby lower the utilization rate of human capital. Tax-benefit systems should be reconsidered as they increasingly redistribute resources from outsiders to insiders in labor markets which is both distortionary and inequitable. Early retirement and pension schemes should be made actuarially fairer as they entail strong incentives to retire early and human capital is thus written off too quickly.
9 citations
Journal Article•
TL;DR: In this article, the authors provided updated estimates of the private and social financial return on enrolling in a master's degree program in the United States, showing that on average, students who enroll in master's degrees receive positive and substantial financial returns, with variation by age, probability of completion, and financing characteristics.
Abstract: In this study, we provide updated estimates of the private and social financial return on enrolling in a master’s degree program in the United States. In addition to returns for all fields of study, we show estimated returns to enrolling in master’s degree programs in business and education, specifically. We also conduct a sensitivity analysis to show how our findings are affected by several key assumptions in the model such as the assumed growth rates of earnings, the direct and indirect costs faced by students, and the age at which a person enrolls in a master’s program. Our findings indicate that, on average, students who enroll in master’s degree programs receive positive and substantial financial returns, with variation by age, probability of completion, and financing characteristics.
9 citations