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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 randomized targeted intervention that grants a cash subsidy conditional on school attendance to a subgroup of eligible children within small rural villages in Mexico (PROGRESA) was studied.
Abstract: The aim of this paper is to study whether a child's schooling choices are affected by the schooling choices of other children. Identification is based on a randomized targeted intervention that grants a cash subsidy conditional on school attendance to a subgroup of eligible children within small rural villages in Mexico (PROGRESA). This policy change spills over to ineligible children if social interactions are relevant. Results indicate that the eligible children tend to attend school more frequently, and the ineligible children acquire more schooling when the subsidy is introduced in their local village. Moreover, the overall effect of PROGRESA on eligible children is the sum of a direct effect due to cash transfers and an indirect effect due to changes in peer group schooling. Interestingly, the social interactions effect is almost as important as the direct effect.
183 citations
TL;DR: A growing body of work suggests that education offers a wide range of benefits that extend beyond increases in labor market productivity, such as reducing crime, improving health, and increasing voting and democratic participation.
Abstract: A growing body of work suggests that education offers a wide-range of benefits that extend beyond increases in labor market productivity. Improvements in education can lower crime, improve health, and increase voting and democratic participation. This paper reviews recent developments on these 'non-production' benefits of education with an emphasis on contributions made by economists.
182 citations
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TL;DR: This paper explored the pace of increase in returns to schooling during the transition from planning to market over time across a number of Central and Eastern European countries, Russia, and China, using metadata from 33 studies of 10 transition economies covering a period from 1975 through 2002.
Abstract: We explore the pace of increase in returns to schooling during the transition from planning to market over time across a number of Central and Eastern European countries, Russia, and China. We use metadata from 33 studies of 10 transition economies covering a period from 1975 through 2002. Our empirical model is an attempt to account for crosssection and over-time variation in rates of return as a function of the timing, speed, and volatility of reform processes as well as estimation methods used and sample characteristics. Our principal aim is to investigate the relative strength of two hypotheses: (1) the speed of economic transformation from planning to market represent the relaxation of legal, regulatory, and institutional constraints on wage-setting behavior, leading directly to adjustment returns to schooling to market rates; 2) the rapid increase in returns to schooling during the early reform period reflects the ability of highly-educated individuals to respond to changing opportunities in a disequilibrium situation. We find that both the speed of reforms and the degree of economic disequilibrium as reflected in macroeconomic volatility help to explain cross-country differences in the time paths of the returns to schooling. We report the systematic effects of sample characteristics, estimation methods, and model specifications on estimated returns to schooling.
182 citations
TL;DR: In this paper, the connection between fertility and education using educational reform as an instrument to control for selection was investigated and it was found that increasing education leads to postponement of first births away from teenage motherhood and towards women having their first birth in their 20s as well as, for a smaller group, up to the age of 35-40.
Abstract: Declining fertility is often attributed to the increased education of women. It is difficult to establish a causal link because both fertility and education have changed secularly. In this paper we study the connection between fertility and education using educational reform as an instrument to control for selection. Our results indicate that increasing education leads to postponement of first births away from teenage motherhood and towards women having their first birth in their 20s as well as, for a smaller group, up to the age of 35–40. We find no evidence, however, that more education results in more women remaining childless or having fewer children.
182 citations
TL;DR: This paper used direct measures of literacy to examine the influence of cognitive and unobserved skills on earnings and found that cognitive skills contribute significantly to earnings and that their inclusion in earnings equations reduces the measured impact of schooling.
181 citations