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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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01 Jan 2014
TL;DR: In this article, the authors examine the utilisation that font les districts scolaires des fonds of English as a Second Dialect (ESD) and quels sont les effets of ce financement on la réussite scolaire.
Abstract: Depuis les années 1980, le ministère de l’Éducation de la Colombie-Britannique investit pour soutenir le développement d’élèves parlant des dialectes plutôt que l’anglais standard. En pratique, les élèves qui profitent de ce soutien financier sont presque tous des Autochtones, et les fonds obtenus dans le cade du programme English as a Second Dialect (ESD, en français Enseignement de l’anglais dialecte second) sont devenus une importante source du financement consacré à des élèves autochtones dans plusieurs districts scolaires. Dans cet article, nous examinons l’utilisation que font les districts scolaires des fonds de l’ESD et quels sont les effets de ce financement sur la réussite scolaire. Nos résultats indiquent qu’il y a un effet positif assez important de l’ESD sur les résultats en lecture chez les élèves autochtones de septième année.
5 citations
TL;DR: In this article, the impact of changes in maternity-related job protection in Germany on employment opportunities for women in childbearing age without children was investigated and it was found that doubling the job-protected leave period from 6 months to 12 months between 1986 and 1988 led to an approximately 6% lower probability of being hired for women without a university degree.
Abstract: In countries with strong employment protection laws it is often considered to be unwise to hire a woman in childbearing age because she might get pregnant. However, such labour demand effects of job protection measures related to maternity leave are often rather anecdotal. To provide analytical evidence, this paper studies the impact of changes in maternity-related job protection in Germany on employment opportunities for women in childbearing age without children for whom the observed effects should be largely demand-related. Exogenous, discrete policy changes in the German labour market of the 1980s and 1990s constitute the setting for a difference-in-differences analysis of the transition into employment as well as wages. The data for this study are taken from the German Socio-Economic Panel and from the German Microcensus. Doubling the job-protected leave period from 6 months to 12 months between 1986 and 1988 led to an approximately 6% lower probability of being hired for women in childbearing age without a university degree. In addition, I find a 5-10% increase in wages for women in childbearing age associated with the latter reform. Since this effect disappears when controlling for having a child in the future, this may indicate an increased need to signal commitment by increased effort after the reform.
5 citations
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TL;DR: In this article, the authors analyzed the monetary benefits of schooling in Lao PDR, on the basis of wage earnings data collected in LECS 2 in 1997/98.
Abstract: Major economic reforms to move from a centrally planned to a market economy in Lao PDR since 1986 have exerted a number of impacts on the labor market, relative earnings, and returns to education. It is too soon to assess the full impact of these reforms, but this paper represents the first analyses of the monetary benefits of schooling in Lao PDR, on the basis of wage earnings data collected in LECS 2 in 1997/98. The estimated rates of returns in Lao PDR are at approximately the same level with other transition economies, but relatively low by international standards. There are significant differences in the returns to schooling among regions and between genders. For example, the rate of return to schooling is 4.5% in Vientiane Capital, and only 2% in other provinces. Males are found to experience lower returns to schooling than do females in Vientiane Capital, but opposite results prevail in other provinces.
5 citations
TL;DR: The authors found no significant evidence that more generous subsidies or lower tax rates on the rich have the effect of raising educational participation, while the best estimates of the size of social returns suggest that they should not be a key driver of policy.
Abstract: Human capital theory suggests that in considering whether to undertake education, individuals weigh up the costs and benefits. On the cost side, this includes direct costs (such as tuition and textbooks) and indirect costs (which largely take the form of foregone earnings). On the benefit side, individuals should consider the additional earnings that will accrue from having higher educational qualifications.The tax-transfer system can affect both costs and benefits of higher education. For example, more generous student income support should increase educational participation rates, while more progressive taxes should reduce educational participation rates. However, the magnitude of these impacts is an empirical question. With some exceptions, the literature on taxes and educational participation generally concludes that taxation can have a substantial impact on human capital acquisition. However, one of the features about the empirical studies on taxation and human capital is that it consists almost exclusively of simulation studies, which model behaviour according to a set of parameters that are drawn from previous studies. A limitation of these studies is that they generally assume no uncertainty and full information, which may not hold in practice. For example, one survey suggests that a majority of respondents to one United States survey wrongly believed that their country’s income tax system was regressive. It is possible that misinformation may be even higher among the cohort who are choosing whether or not to stay in school, attend TAFE, or complete a university degree.The literature on subsidies and human capital tends to consist largely of natural experiment studies, which have the advantage that they are estimated from real-world policy changes. These studies tend to suggest that subsidies can affect participation, but that the effects are larger for low-income students, and that the impact of grants is larger than the impact of loans. Since educational subsidies are generally marketed directly to young people, it is not unreasonable to think changes in subsidies may be more salient than the degree of progressivity in the taxation system.In trying to set optimal education taxes and subsidies, it is useful to have regard to the literature on social returns to education. This suggests that social returns are present, particularly in the areas of crime (from higher school completion rates) and productivity (from higher university completion rates). However, the best estimates of the size of social returns suggest that in the main, they should not be a key driver of policy. By contrast, there is robust evidence that private returns to education are large and significant. Completing year 12 raises gross income by 30 percent (relative to completing year 10) and completing a bachelor’s degree raises gross earnings by 49 percent (relative to completing year 12). Taking taxes and transfers into account lowers these estimates by 11-15 percent, but the private gain from human capital acquisition is still substantial.What is the cross-country relationship between educational participation and taxes and subsidies? To test this, I look across 27 developed nations, to see whether those with higher public subsidies to education, or less progressive taxes, have higher rates of participation in tertiary education. Contrary to theoretical predictions, I find no significant evidence that more generous subsidies or lower tax rates on the rich have the effect of raising educational participation. One possible interpretation of this result is that the cross-country measure of participation is poorly measured, or confounded by an omitted variable that affects both participation and subsidies/taxes. Another plausible explanation is that, in aggregate, taxes and subsidies have a relatively small impact on educational participation.
5 citations
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TL;DR: In this article, the authors used a large data set from Colombia, the Living Standard Survey 2003, to compare the results from three main methodologies: standard OLS estimation, propensity-score matching, and instrumental variables.
Abstract: Employers and job seekers rely extensively on job informational networks to fill vacancies or to find a job. The widespread use of job contacts to find work has been largely associated with labor outcomes, such as finding a job or even affecting wages. Some scholars have claimed that informal referrals play a determinant role in reducing informational mismatches between potential employers and job seekers. Although several studies have shown that the use of friends and relatives is correlated with labor outcomes, little is known about the causal effect. In this article, I aim to identify whether there is a causal effect of using informal referrals on two main outcomes: the probability of being employed and hourly wages. I use a large data set from Colombia, the Living Standard Survey 2003, to contrast the results from three main methodologies: standard OLS estimation, propensity-score matching, and instrumental variables. Results suggest that much of the positive effect of using informal referrals on employment reflects the prevalence of informal-sector jobs to be filled through this method rather than a causal effect. On the contrary, the results for hourly wages suggest a negative causal effect of using job informational networks, which is explained by the low-quality/poor matches theory. Yet, this is only true in formal-sector firms.
5 citations