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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 used law changes in the unemployment compensation system enacted in Germany during the 1980s and 1990s to demonstrate that "incentives" are more important than "capabilities" in determining variation in IT usage.
Abstract: Two main hypotheses can be found in literature on why elderly workers have a lower probability of using information technology than their younger peers: lower learning capabilities and reduced incentives to invest in human capital I use law changes in the unemployment compensation system enacted in Germany during the 1980s and 1990s to demonstrate that "incentives" are more important than "capabilities" in determining variation in IT usage Elderly workers only fell behind the IT usage rates of their younger peers during the 1980s and 1990s, when unemployment benefits got increasingly generous, thereby reducing their incentives to invest in human capital
3 citations
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TL;DR: The authors examined the causal impact of education on within-country migration and found that polytechnic graduates have a 7.5 (13.7) percentage points higher migration probability during a three-year (six-year) follow-up period than vocational college graduates.
Abstract: This paper examines the causal impact of education on within-country migration. A major higher education reform took place in Finland in the 1990s. It gradually transformed former vocational colleges into polytechnics and expanded higher education to all regions. The reform created exogenous variation in the regional supply of higher education. Using the reform as an instrument, our estimation results show that polytechnic graduates have a 7.5 (13.7) percentage points higher migration probability during a three-year (six-year) follow-up period than vocational college graduates.
3 citations
27 Oct 2010
TL;DR: In this article, the life cycle interactions between investments in human capital, retirement choices and pension savings are studied, and the consequences of demographic ageing in the upcoming decennia are discussed.
Abstract: Understanding the life-cycle interactions between investments in human capital, retirement choices and pension savings is highly policy-relevant. Most Western governments will be confronted with the consequences of demographic ageing in the upcoming decennia. Tax bases will shrink, due to the retirement of older generations of workers. Outlays on state pensions and healthcare will rise substantially. Pension systems with strong intergenerational risk sharing face difficulties as well, since it will become more difficult and costly to smooth pension risks over different generations by means of contribution adjustments. At the same time, individuals do not invest in skills, because they expect to retire early. And, individuals retire early because they have not invested in skills. As a result, many European countries are confronted with a vicious circle of low investments in on-the-job training of older workers and strong incentives to retire early.
3 citations
TL;DR: In this paper, the authors focused on the estimation of heterogeneity of average treatment effect (ATE) on a cohort of college and high school graduates using the 2008 survey on household, income and wealth of the Bank of Italy.
Abstract: This paper uses official Italian micro data and different methods to estimate, in the framework of potential outcomes, the marginal return to college education allowing for heterogeneous returns and for self-selection into higher education. Specifically, the paper is focused on the estimation of heterogeneity of average treatment effect (ATE) on a cohort of college and high school graduates using the 2008 survey on household, income and wealth of the Bank of Italy. Methodologically, this study was carried out by using both propensity-score-based (PS-based) methods and a new approach based on marginal treatment effects (MTE), recently proposed by Heckman and his associates as a useful strategy when the ignorability assumption may be violated. In the PS-based approach, heterogeneous treatment effects are estimated in three different manners: the traditional stratification approach (propensity score strata), the regression adjustment within propensity score strata and, finally, a non-parametric smoothing approach. In the MTE approach, the treatment effect heterogeneity across individuals is estimated in a parametric as well as a semi-parametric strategy. Our empirical analysis shows that the estimated heterogeneity is substantial: following MTE based results (quite representative of other methods) the return to college graduation for a randomly selected individual varies from as high as 20 % (for persons who would add one fifth of wage from graduating college) to as low as −22 % (for persons who would lose from college graduation), suggesting that returns are higher for individuals more likely to attend college. Furthermore, the results of different methods show very low (point) estimates of ATE: average college returns vary from 3.5 % by the PS-smoothing method to 1.8 % by the parametric MTE method, which also leads a greater treatment effect on treated (5.5 %), a moderate, but significant sorting gain and a negligible selection bias.
3 citations