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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: This paper found that prospective students do choose fields of study in part at least on the basis of earnings they can expect to receive in those fields, and that earnings expectations formed around the time they are applying are more influential than earnings expectations based on years further away from that time, although both generally have an impact on the choice of field of study.
Abstract: We utilize the 2000 cohort of university graduates from the National Graduate Survey (NGS) to estimate the extent to which the choice of field of study is influenced by expected returns to those fields of study. The expected returns are based on earnings equations estimated from the earlier 1990 NGS cohort for the years 1992 and 1995 -- years that are around the time when the 2000 cohort would be applying to university and forming expectations of their expected returns by field of study. We estimate those expected returns using conventional OLS earnings equations as well as IV estimates to account for the potential endogeneity of the returns by field of study since selection effects may bias the expected returns. Our IV estimates utilize measures of skill-biased technological change as instruments. Overall, our results suggest that prospective students do choose fields of study in part at least on the basis of earnings they can expect to receive in those fields. Furthermore, earnings expectations formed around the time they are applying are more influential than earnings expectations based on years further away from that time, although both generally have an impact on the choice of field of study.
6 citations
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TL;DR: In this paper, the authors explore the importance and feasibility of adding retrospective questions about actual work experience to cross-sectional data sets and demonstrate that having such actual experience data is important for analyzing women's post-school human capital accumulation, residual wage inequality, and the gender pay gap.
Abstract: We use Michigan Panel Study of Income Dynamics data and data from a 2008 telephone survey of adults conducted by Westat for the Princeton Data Improvement Initiative (PDII) to explore the importance and feasibility of adding retrospective questions about actual work experience to cross-sectional data sets. We demonstrate that having such actual experience data is important for analyzing women's post-school human capital accumulation, residual wage inequality, and the gender pay gap. Further, our PDII survey results show that it is feasible to collect actual experience data in cross-sectional telephone surveys like the March Current Population Survey annual supplement.
6 citations
TL;DR: In this paper, the effect of tertiary education eligibility on crime in Sweden was investigated using a panel data set of 287 Swedish municipalities over the period 1998-2010, and it was found that increasing the tertiary Education eligibility rate decreases both property and violent crime substantially.
Abstract: This paper estimates the effect of tertiary education eligibility on crime in Sweden. The hypothesis tested is that continuing to higher education decreases crime rates since it allows young people to escape inactivity and idleness, which are known to trigger crime. However, to qualify for tertiary education, individuals have to meet the eligibility requirements in upper-secondary school. Tertiary education eligibility may therefore affect crime rates. This paper uses a panel data set of 287 Swedish municipalities over the period 1998–2010 to estimate the tertiary education eligibility effect on crime. However, estimating educational effects on crime is challenging, because investment in education is an endogenous decision. In Sweden, substantial grade inflation, increased tertiary education eligibility by more than 6% points between 1998 and 2003. Thus, since the eligibility increase is exogenous to the educational achievements of a student cohort, i.e. not accompanied by a corresponding knowledge increase, we can use the increase to identify the effect of tertiary education eligibility on crime. It is found that increasing the tertiary education eligibility rate decreases both property and violent crime substantially. The results show that when young people have the opportunity to attend tertiary education, and thus escape unemployment or inactivity, their propensity to commit crime decreases.
6 citations
01 Jan 2012
TL;DR: In this paper, the authors present a test of the exogeneity of a single explanatory variable in a multivariate model, which allows for the structural equation to not be identied under both the null and the alternative hypotheses.
Abstract: This paper presents a test of the exogeneity of a single explanatory variable in a multivariate model. It allows for the structural equation to not be identied under both the null and the alternative hypotheses. In particular, it does not require exogeneity of the other regressors, or the existence of instrumental variables. The model may be general (nonparametric, nonseparable), except for the requirement that it be continuous on the explanatory variable of interest. This test has power when unobservable confounders are discontinuous with respect to the explanatory variable of interest, and it is particularly suitable for applications where that variable contains bunching points. I apply the test to the problem of estimating the eects of smoking during pregnancy on the baby’s weight at birth, which is an important predictor of the health and socio-economic outcomes of the baby later in his or her life. I nd very strong evidence that smoking is endogenous even after controlling for the most complete covariate specication in the literature. I argue that pregnancy smoking is likely to have little or no eect on birth weight, certainly much smaller than it is currently believed.
6 citations
01 Jan 2001
TL;DR: In this article, the authors examined the relationship between education and income and discussed the implication of native ability on the relationship, and various theoretical interpretations regarding the effect of education on income are set out.
Abstract: This article examines the following proposition: ‘education improves the productivity of people.’ Empirical findings regarding this statement are mixed in the advanced countries, while it is supported in the developing countries. The article goes on to examine the relationship between education and income, and discusses the implication of native ability on the relationship. Various theoretical interpretations regarding the effect of education on income are set out, and various empirical studies are evaluated.
6 citations