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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, a dynamic Structural Equation Model of ability formation was used to investigate the determinants of NEET status in adolescents, with a special focus on mental health.
Abstract: This paper uses a dynamic Structural Equation Model of ability formation to investigate the determinants of NEET (not in education, employment or training) status in adolescents, with special focus on health. The model addresses the issue of measurement error in estimating ability and mental health; and explores the determinants of ability and NEET status through time. The analysis finds that ability remains the key predictor of NEET status; and while general health plays an important role in the formation of ability for both girls and boys, the impact of mental health differs between the sexes.
6 citations
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01 Nov 2019
TL;DR: In this article, the authors investigated the linkages between job mismatch and wages, job satisfaction, and on-the-job search among African youth and found that overskilling and overeducation are associated with a wage penalty and undereducation leads to a wage premium.
Abstract: This paper contributes to the empirical literature on the incidence of skill and educational mismatches of African youth and explores the linkages between job mismatch and wages, job satisfaction, and on-thejob search. It uses school-to-work transition survey datasets from 10 African countries and controls for unobserved heterogeneity, sample selection bias and endogeneity problems during the estimation of job mismatch. Results show that skill and educational mismatches are prevalent in Africa: 17.5% of
employed youth are overskilled, 28.9% underskilled, 8.3% overeducated and 56.9% undereducated. Our estimation results reveal that overskilling and overeducation are associated with a wage penalty and undereducation leads to a wage premium. In addition, both overskilling and overeducation reduce job satisfaction and increase youth’s likelihood of on-job search. Our pseudopanel approach also suggests that skill and educational mismatches of youth are persistent over time and skill-mismatched youth are more likely to transition to better-matched jobs than youth with
inadequate education. Finally, our results show that unemployment has a scarring effect for underskilled youth and both a scarring effect and a stepping-stone effect for overskilled and overeducated youth. The findings have important policy implications on how to address the persistent skill and educational mismatches among employed African youth.
6 citations
TL;DR: In this article, the effects of a youth training program in Bangladesh on labor market outcomes are estimated. The program, organized as a randomized controlled trial, provides on-the-job and classroom training to disadvantaged unemployed youth.
6 citations
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TL;DR: The authors examined the effect of information and communication technologies (ICT) on the return paid to two different types of skills: general skills, acquired through schooling and work experience, and job-specific skills acquired by experience in a particular job.
Abstract: This paper examines the effect of information and communication technologies (ICT) on the return paid to two different types of skill: general skills, acquired through schooling and work experience, and job-specific skills, acquired by experience in a particular job. Using the UK Labour Force Survey we estimate skill returns in different industries over the period 1994-2001. We evaluate the marginal effect on these returns of the ICT intensity of industry capital and find that the shift towards ICT capital has been associated with a rise in the return to general skills and a reduction in the return to job-specific experience.
6 citations
14 Dec 2015
TL;DR: In this article, a special discrete choice experiment is designed to evaluate the value of time devoted for studying as a proxy of effort required to complete the studies and the results show that men exhibit significantly higher forgone earnings than women, while women tend to put more effort in studying resulting in higher disutility of residual time.
Abstract: The decision to pursue for tertiary education has very important economic implications. In the short run it generates costs in the form of direct financial expenditure and devotion of other scarce resources like time. It also involves an alternative cost of studying which manifests itself in the flow of forgone potential earnings. In the long run however it creates a stream of benefits through increased income and reduced incidence of non-employment. This research paper aims at estimating the value of tertiary education in Poland for men and women over the life cycle using specific dataset of Labor Force Surveys for generation born in 1977. Regression adjusted counterfactual wages are estimated using Heckman selection models as proxy of the alternative costs of studying and a special Discrete Choice Experiment is designed to evaluate the value of time devoted for studying as a proxy of effort required to complete the studies. Results suggest that the net present value of tertiary education is lower for men than women in the short horizon of professional career. Women break even at the age of 36, while men need to wait additional two years. In the long run however both net present values nearly equalize. Estimates show that men exhibit significantly higher forgone earnings than women, while women tend to put more effort in studying resulting in higher disutility of residual time. The most interesting result is that tertiary education brings about significant wage premium for men as compared to secondary male graduates, while keeping employment probability only slightly higher. On the other hand – tertiary education for women in Poland results in a significant increase of the probability of employment over the life cycle as compared to secondary female graduates while giving also significant wage premia (although lower than for men). The surprising effect is that the internal rate of return appears to be slightly higher for women.
6 citations