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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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Dissertation•
01 Jan 2015
TL;DR: Theoretical literature review as discussed by the authors discusses the Solow (or neo-classical) model, growth accounting, and the growth effect of education in South Africa and concludes that education investment and social rates of return are correlated.
Abstract: ...................................................................................................................................iv Acknowledgements ................................................................................................................. v List of Acronyms Used ............................................................................................................ix Chapter 1: Introduction ........................................................................................................... 1 1.0 Introduction ....................................................................................................................................... 1 1.1 Background....................................................................................................................................... 2 Chapter 2: Theoretical Literature Review ............................................................................... 6 2.0 Introduction ....................................................................................................................................... 6 2.1 The Solow (or neo-classical) model.............................................................................................. 6 2.3 The ‘New Growth Theories’ ........................................................................................................... 7 2.4 Growth accounting ......................................................................................................................... 12 2.5 The growth effect of education .................................................................................................... 17 2.6 Human capital ................................................................................................................................ 21 2.7 Uses of Human Capital ................................................................................................................. 24 2.8 Sources of Human Capital Differences ...................................................................................... 26 2.9 Human capital externalities .......................................................................................................... 27 2.10 Innovation ..................................................................................................................................... 30 2.11 Public expenditure and economic growth ................................................................................ 33 2.12 Education investment and Social rates of return .................................................................... 35 2.13 Conclusion .................................................................................................................................... 36 3.0 Empirical Literature ....................................................................................................................... 37 3.1 Empirical work ................................................................................................................................ 37 3.2 Micro studies: labour economics literature ................................................................................ 39 3.3 Macro Studies literature review ................................................................................................... 43 3.4 Evidence from growth regressions .............................................................................................. 46 3.6 Innovation and economic growth ................................................................................................ 55 3.7 Government Intervention .............................................................................................................. 57 3.8 Enrolment trends and policy affecting education ...................................................................... 58 3.9 South Africans reflect on international experience ................................................................... 60 3.10 School reform system in South Africa ...................................................................................... 61
5 citations
TL;DR: The findings suggest that the mismatch hypothesis cannot be viewed as a universal phenomenon that renders affirmative action in college/university admissions an ineffective policy tool to redress/remedy historic discrimination against minority groups.
Abstract: This paper utilizes data from the 2002 Chinese Household Income Project to estimate the labor market return to graduating from college relative to high school. Parameter estimates of heterogeneous treatment effects reveal that for minorities, the average treatment effect of earning a baccalaureate degree from colleges/universities ranked good and very good is high relative to the Han majority, and for those actually receiving the treatment from colleges/universities ranked good. Our findings suggest that the mismatch hypothesis cannot be viewed as a universal phenomenon that renders affirmative action in college/university admissions an ineffective policy tool to redress/remedy historic discrimination against minority groups.
5 citations
TL;DR: In this paper, the authors analyzed the effects of a large series of school openings in Sweden during the early 20th century, which provided adolescents with better access to secondary education, and found that the opening of a new lower secondary school in a municipality increased the baseline probability of running for political office by 10-20%, and the probability of holding office by 20-30%.
5 citations
TL;DR: This article analyzed the economic return to college under more realistic assumptions using U.S. Census data combined with administrative data from the more selective University of California system and the less selective California State University system and found that the return to a college degree in 2010 could be less than the interest on unsubsidized Stafford loans.
Abstract: Most published estimates of the economic return to college rest on a series of best-case assumptions that often overstate returns and, most importantly, obscure differences in return across different institutions. We simulate the economic return to college under more realistic assumptions using U.S. Census data combined with administrative data from the more selective University of California system and the less selective California State University system. Specifically, we adjust for delayed graduations, the probability of dropping out, progressive taxes on earned income, and risk aversion. We perform a bounding exercise for ability bias. These each reduce expected returns to a Bachelor's degree. Contrary to prior "best case" estimates, and under reasonable bounds for the ability bias, we find that the return to a college degree in 2010 could be less than the interest on unsubsidized Stafford loans. Returns are particularly modest for young men at the less-selective CSU system, largely due to high dropout rates, delayed graduation, and a lower effect on labor force participation compared to women. Our analysis begins to bridge the gap between standard estimates of the economic return to college and the institutional performance metrics reported in the Obama Administration's College Scorecard.
5 citations
TL;DR: In this article, the authors argue that the differences in the estimates obtained by Jordahl et al. have been generated not only because the sensitivity of HT estimators to the choice of instrumental variables, but also to the estimation metholology followed by them, in which rarely changing variables are considered to be time-varying.
5 citations