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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, the authors estimate a production function where nutrition is modeled as having two distinct effects: positive and significant effect on the returns to future investments in human capital and negative effect on current returns to labour.
5 citations
30 Jan 2013
TL;DR: This paper showed that the United States is unusually unfair due to larger regional differences in labour market returns and/or stronger associations between parents' and their children's ability, ability and education attainment, and education and earnings.
Abstract: Since the early 1990s there has been a growing body of research on intergenerational income elasticities and correlations. One of the most prominent findings is that these associations are much higher in the United States (and the United Kingdom) than in Canada, Australia and many European countries. This finding is often interpreted as America being much less fair than other industrialized societies since the reproduction of economic inequalities is substantially stronger. This chapter questions these conclusions on the following grounds: (i) inconsistencies with other outcomes, such as socio-economic inequalities in student achievement, educational attainment, occupation attainment and the patterning of intergenerational occupational mobility, (ii) family income having weaker effects on educational attainment (which has substantial effects on earnings and income) than other parental characteristics and (iii) methodological issues such as estimates based on the concept of ‘permanent income’ and the use of instrumental variables. Even if the consensus estimate of 0.4 for the intergenerational correlation in the United States is accepted, it may not mean that the United States is unusually unfair due to larger regional differences in labour market returns and/or stronger associations between parents’ and their children's ability, ability and education attainment, and education and earnings.
5 citations
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TL;DR: The authors empirically implements the Roy self-selection model to study why low-skilled workers choose to work in a foreign economy and what determines their wages, using a unique dataset on Palestinian workers working locally and in the Israeli economy.
Abstract: Why do low-skilled workers choose to work in a foreign economy and what determines their wages? The Paper empirically implements the Roy self-selection model to study this question. It does so using a unique dataset on Palestinian workers working locally and in the Israeli economy. The data permit examination of both migrants and non-migrants on a comparable basis and are used to construct the relevant wage equations. The results show that key determinants of self-selection are a substantial migration premium, which lures migrant workers, and very low returns to observable skills in the foreign economy, which deter skilled workers. While the literature has found negative self-selection elsewhere, direct estimation of the relevant second moments - crucial for the determination of self-selection - shows that the same findings can be re-interpreted. In particular, we find positive self-selection, leading to a reduction in wage inequality and to worker assignment such that wages are equalized across workers employed in the source and in the host economies. Correcting for selection bias demonstrates that estimates of skill premia for migrants - an important issue in the immigration literature - are upwardly biased if selection is not accounted for.
5 citations
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TL;DR: The authors evaluate the effects of changes in maximum student loan limits on enrolments of young people and find that although there is evidence that increasing non-repayable assistance leads to increases in enrolments, loans appear to increase only the probability of youth living away from their parents’ house while studying.
Abstract: Student loan programs are an important feature of post-secondary education systems around the world However, there is little direct evidence on whether these programs are effective in increasing enrolments of credit constrained students Unlike other countries, Canada has a system of student loans and grants that is based on combined provincial/federal jurisdiction, leading to policy differences over time between provinces I exploit these differences to evaluate the effects of changes in maximum student loan limits on enrolments of young people I find that although there is evidence that increasing nonrepayable assistance leads to increases in enrolments, loans appear to increase only the probability of youth living away from their parents’ house while studying
5 citations