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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 paper, it is argued that if one or more career based occupational tracks (vocationalisation of upper-secondary education) is offered at the upper secondary level (Class 8-10) as supplements to general education, dropout can be reduced.
Abstract: Pakistan’s education system has been the focus of various reforms every few years, and a new exercise has been initiated recently through the National Education Policy, 2009. While the problems are generally well documented and stress on universal primary education fully justified, the role of economic relevance of education and training as a factor discouraging completion is not sufficiently emphasised. Studies from developing and developed countries highlight the strong linkage between education and training and employment, and the economic and social returns of employability of trained workers. It is argued that if one or more career based occupational tracks (vocationalisation of upper-secondary education) is offered at the upper secondary level (Class 8-10) as supplements to general education, dropout can be reduced. This will result in increased employability, productivity and competitiveness in the work environment. Co-financing with the private sector of a Rs 48 billion programme for practical on-the-job training is examined in the light of international experiences.
7 citations
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TL;DR: In this article, the authors estimate the causal impact of schooling on wages and find that among men ages 20 to 45 the return of schooling is between 2.0 to 5.7 percent, which is much lower than the wage returns estimated in other developing countries with the exception of Turkey where returns to schooling are similarly low.
Abstract: This paper estimates the returns to schooling in Egypt using a policy reform that reduced primary school from 6 to 5 years. As a result of this reform, which was implemented in 1988, compulsory schooling declined from 9 to 8 years. The results indicate that the reform led to a substantial decline in completed years of schooling among the affected cohorts. We exploit this policy change to estimate the causal impact of schooling on wages and find that among men ages 20 to 45 the return of schooling is between 2.0 to 5.7 percent. These estimated returns are much lower than the wage returns estimated in other developing countries with the exception of Turkey where returns to schooling are found to be similarly low.
7 citations
01 Dec 2002
TL;DR: In this article, the authors investigate the effects of different measures of schooling on productivity so as to provide systematic evidence that is pertinent to distinguishing between the different perspectives in an empirical manner, and conclude that this difficult research problem can indeed be empirically investigated and that researchers should consider revisiting the challenge of understanding the nature of the various effects of education on social stratification.
Abstract: A classic issue in social stratification is whether the correlation between an individual’s education and his or her socioeconomic attainment is derived from increased productivity (i.e., human capital), labor market screening or simply from his or her credentials (credentialism). All three theories predict an association between education and socioeconomic status, but they differ with regard to the precise underlying causes of such a relationship. While previous research has largely avoided the challenge of empirically testing these three competing explanations, here we provide some relevant findings to tackle this research dilemma. More specifically, we investigate the effects of different measures of schooling on productivity so as to provide systematic evidence that is pertinent to distinguishing between the different perspectives in an empirical manner. The results of our analysis of recent data on productivity and schooling in Taiwanese manufacturing industries clearly support the view of education as productive human capital and provide limited backing for the notion of a mechanism for labor market screening. Since these results only pertain to the manufacturing sector, they cannot be used to generalize about the entire economy. Nonetheless, we conclude that our findings demonstrate that this difficult research problem can indeed be empirically investigated and that, in the future, researchers should consider revisiting the challenge of understanding the nature of the various effects of education on social stratification.
7 citations
TL;DR: In this article, a micro-level approach and using data from the European Working Conditions Survey (EWCS) covering 27 countries was used to analyse the determinants of job quality.
Abstract: Based on a micro-level approach and using data from the European Working Conditions Survey, covering 27 countries, we analyse the determinants of job quality. With cluster analysis applied to 11 dimensional indices, we form three homogeneous country groups and identify, by estimating twice-censored Tobit models, the main determinant factors affecting the individual level of job quality in each group. We verify the relevance of variables related to worker characteristics, firm characteristics, and the country in which the individual works. Among worker characteristics, education and employment status are the factors with the highest impact on job quality, while the economic sector is the most important firm characteristic. The results suggest the existence of important differences among groups regarding the magnitude of the impact of some factors. The highest dissimilarities are found between the group with better jobs (Nordic countries plus Belgium) and the group with lower quality jobs (Central and Easte...
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TL;DR: In this paper, the authors identify the main determinants of the probability of a household being poor, middle class, or rich using a set of characteristics of the households and the household's individual of reference as explanatory variables.
Abstract: Purpose – The purpose of this paper is to identify the main determinants of the probability of a household being poor, middle class, or rich.Design/methodology/approach – A new and integrated approach to the measurement of inequality in income distribution, poverty, and richness was recently proposed. Based on that approach and considering data for the Portuguese economy, the authors estimate a multinomial model in order to identify the main determinants of the probability of a household being poor, middle class, or rich using a set of characteristics of the households and the household's individual of reference as explanatory variables.Findings – The evidence obtained indicates that: the determinants of poverty and richness are similar in qualitative terms; and household type, main source of income, education, and labor market state are the most important factors explaining these phenomena.Originality/value – Following a methodology recently proposed by Crespo et al. toward an integrated measurement of i...
7 citations