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The causal effect of education on earnings

01 Jan 1999-Handbook of Labor Economics (Elsevier)-pp 1801-1863
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, two main econometric models, namely fixed-effects and selection effects, used to analyse returns to schooling were compared using monozygotic and di-zygotic twins' datasets in Ghana.
Abstract: Strong empirical links exist between the number of years spent schooling and earnings. How­ever, the relationship may be masked due to the effect of unobserved factors that influence both wages and schooling. Two of the main econometric models, namely fixed-effects and se­lection-effects, used to analyse returns to schooling were compared using monozygotic and di­zygotic twins’ datasets in Ghana. The efficiency of the models was assessed based on the stan­dard errors associated with the return to schooling estimates. Goodness of fit measures was used as a basis for comparison of the performance of the two models. The results revealed that based on their standard errors, the regression estimates from the selection effects model (MZ = 0.1014±0.0197; DZ = 0.0947±0.0095) were more efficient than the regression estimates from the fixed-effects model (MZ = 0.1115±0.0353; DZ = 0.082±0.0127). However, the AICc values of the fixed effects model (MZAICc = 57.8 and DZAICc = 105.4) were smaller than the AICc values of the selection effects model (MZAICc = 151.6 and DZAICc = 221.6). Findings from the study indicate that, although both models produced consistent estimates of the economic returns to schooling, the fixed effects model provided a better fit to the twins’ data set.

2 citations

Posted Content
TL;DR: In this article, the relationship between education and wages differentials and other factors that may account for the differences in wages among the various categories of workers as well as determine factors that lead to investments in higher forms of education.
Abstract: This study sought to find out the relationship between education and wages differentials and other factors that may account for the differences in wages among the various categories of workers as well as to determine factors that lead to investments in higher forms of education. The instrument employed for the investigation is mainly questionnaires. The research targeted a sample size of 100. The population considered was the labor force in Accra. However, considering the target group and how busy they are, resources and not having the luxury of time, we settled for a sample size of 100. The sampling technique employed was convenience sampling. The respondents were public and private sector workers. Pie charts, bar graphs, scatter diagrams and tables were employed to explain the pattern of some variables. Our findings showed that aside education, there were other factors that attributed to the existing wage differentials. Some of these factors include the sex of the worker, sector in which the worker works in, company policy, skills and working conditions. All these are significant causes of wage differentials.

2 citations

Posted Content
TL;DR: In this paper, a regression discontinuity design was used to compare the earnings of age cohorts containing British men who were required to undertake post-war National Service with later cohorts who were exempt.
Abstract: This paper adds to the literature on the relationship between military service and long-term real earnings. Based on a regression discontinuity design it compares the earnings of age cohorts containing British men who were required to undertake post-war National Service with later cohorts who were exempt. It also compares age cohorts containing men who were conscripted into military service during the first half of WWII and those with later spells of conscription. It argues that, in general, we should not expect large long-term real earnings differences between conscript and non-conscript cohorts since important elements of the former received military training and experience of direct value in the civilian jobs market. In the case of call-up during WWII there is even more reason to expect that there was no major disadvantages to those conscripted. This occurred largely because their pre-military job status was preserved due to the employment of substitute women workers who acted as a temporary employment buffer thereby protecting serving men's positions on the jobs hierarchy.

2 citations

Posted Content
Norbert Schady1
TL;DR: Schady et al. as discussed by the authors used data from a recent household survey for the Philippines, the 1998 Annual Poverty Indicator Survey, to test the fit of the log-linear specification for Filipino men.
Abstract: A revised version was published as Convexity and Sheepskin Effects in the Human Capital Earnings Function: Recent Evidence for Filipino Men. Oxford Bulletin of Economics and Statistics 65 (2), May 2003. Data on education in the Philippines show that there are large differences in the private rate of return to education by level: the wage premia associated with an additional year of schooling are about twice as large at the university level as they are at the primary school level. In addition, there are large sheepskin effects. Completion of the last year of schooling within a given level is rewarded disproportionately, particularly for university graduates. Much attention has been paid to the issue of possible nonlinearities in the relationship between log wages and schooling in the literature on both the United States and developing countries. Schady uses data from a recent household survey for the Philippines, the 1998 Annual Poverty Indicator Survey, to test the fit of the log-linear specification for Filipino men. He presents results based on various estimation strategies, including spline regressions and semi-parametric regressions with a large number of dummy variables for years of schooling and experience. He concludes that: - There appear to be large differences between rates of return to education across different levels in the Philippines. The wage premia for both primary and secondary education are significantly smaller than those for tertiary education. - Within each level - primary, secondary, and university - the last year of schooling is disproportionately rewarded in higher wages. That is, there appear to be clear sheepskin effects associated with graduation. This paper - a product of the Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region - is part of a larger effort in the region to understand the links between education, earnings, and welfare.

2 citations

Journal ArticleDOI
Fumihiko Suga1
TL;DR: This paper used three household surveys, the Japanese Panel Survey of Consumers (JPSC), the Working Person Survey (WPS), and the Survey of Adult Skills (PIAAC), to estimate the returns to postgraduate education in Japan, considering potential self-selection bias.
Abstract: Using three household surveys, the Japanese Panel Survey of Consumers (JPSC), the Working Person Survey (WPS), and the Survey of Adult Skills (PIAAC), this study estimates the returns to postgraduate education in Japan, considering potential self-selection bias. To mitigate the bias, workers’ undergraduate majors, types of university, and level of cognitive skills are controlled for. These factors explain 6.3–29.2% of the postgraduate wage premium for women, but at most 10.9% for men. Even after controlling for them, the postgraduate wage premium remains positive and significant, ranging from 16.5 to 23.7% for men and 13.5–26.4% for women.

2 citations