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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: The authors found very high returns to college, which indicate that the disappointing trend in higher education could reflect binding credit constraints, psychic costs or uncertainty about future earnings gains from schooling in Brazil.
5 citations
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TL;DR: In this article, the authors examined the employment mobility and returns to technical and vocational training relative to general education in Tanzania, using data from the 2014 Integrated Labour Force Survey (ILFS).
Abstract: This paper examines the employment mobility and returns to technical and vocational training (TVET) relative to general education in Tanzania, using data from the 2014 Integrated Labour Force Survey (ILFS). The result shows that TVET training facilitates individual transition into employment. Both in descriptive statistics and regression results, technical, on the job training, vocational and apprenticeship training are particularly important in acquiring formal employment. The results further show that, though the returns to general education (GED) and TVET are positive and statistically significant, on average those with TVET training are earning relatively less than those with general education, implying lower returns to TVET graduates compared to general education graduates. The descriptive statistics confirm this by showing that, in Tanzania, workers with a university degree earn twice those with technical training and three times those with vocational training. Two implications stand out: technical and vocational training are instrumental in addressing the rising youth unemployment; and, to make it attractive to parents and students governments across the region have to work towards raising the returns to TVET.
5 citations
01 Jan 2009
TL;DR: In this article, the authors measured empirically the effects of instructional time on students' academic achievement in math, science and reading in PISA 2006 and found that instructional time has a positive and significant effect on test scores.
Abstract: There are large differences across countries in instructional time in public schooling institutions. Can these differences explain some of the differences across countries in pupils’ achievements in different subjects? While research in recent years provides convincing evidence about the effect of several inputs in the education production function, there is limited evidence on the effect of classroom instructional time. Such evidence is of policy relevance in many countries, and it became very concrete recently as President Barrack Obama announced the goal of extending the school week and year as a central objective in his proposed education reform for the US. In this paper, I measure empirically the effects of instructional time on students’ academic achievement in math, science and reading. I estimate non-linear instructional time effects controlling for unobserved heterogeneity of both pupils and schools. The evidence from a sample of 15 year olds from over fifty countries that participated in PISA 2006 consistently shows that instructional time has a positive and significant effect on test scores. The effect is large relative to the standard deviation of the within pupil test score distribution. I obtain similar evidence from a sample of 10 and 13 year olds in Israel. The OLS results are highly biased upward but the within student estimates are very similar across groups of developed and middle-income countries and age groups. The estimated effect of instructional time in the sample of developing countries is much lower than the effect size in the developed countries. I also show that the productivity of instructional time is higher in countries that implemented school accountability measures, in countries that give schools autonomy in hiring and firing teachers and in countries with higher quality of school resources and with shortage of teachers.
5 citations
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TL;DR: In this paper, the authors estimate the returns to schooling in rural China using household survey data from the mid-1990s and calculate the impact of the education expansion on subsequent labor market outcomes of the affected cohorts and find that they enjoyed significantly higher earnings than pre- and post-expansion cohorts.
Abstract: During the Cultural Revolution China embarked on a remarkable, albeit temporary, expansion of post-primary education in rural areas. This education expansion affected tens of millions of children who reached secondary school age in the late 1960s and 1970s. Exploiting the education expansion and variation across birth cohorts, we estimate the returns to schooling in rural China using household survey data from the mid-1990s. Our estimated returns of 11 to 20 percent are substantially higher than most previous estimates. We calculate the impact of the education expansion on subsequent labor market outcomes of the affected cohorts and find that they enjoyed significantly higher earnings than pre- and post-expansion cohorts.
5 citations
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TL;DR: In this article, the authors study the returns to human capital for workers observed in two leading manufacturing sectors and show that low wage workers experience greater returns to labour market experience than high wage workers.
Abstract: From Tunisian matched worker-firm data in 1999, we study the returns to human capital for workers observed in two leading manufacturing sectors. Workers in the mechanical and electrical industries (IMMEE) benefit from higher returns to human capital than their counterparts in the Textile-clothing industry. In the IMMEE firms, low wage workers experience greater returns to labour market experience than high wage workers. The wage premium for on-the-job training is substantial for both sectors. However, taking into account whether formal training is still ongoing at the time of the survey, our results clearly indicate that workers bear heavy costs for their training. Our analysis shows that on-the-job training (OJT) and education can be efficient channels of policies aiming at raising earnings for low wages as well as high wages workers. However, careful consideration of the industrial sector should accompany these policies since specific impact of education, experience, OJT are found in the studied sectors.
5 citations