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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 2012
TL;DR: In this article, the authors employ a model of signaling with credit constraints and private employer learning to provide a microfounded justification for the increase in wage inequality in the US over the past four decades.
Abstract: During the past four decades both between and within group wage inequality increased significantly in the US. I employ a model of signaling with credit constraints and private employer learning to provide a microfounded justification for this pattern. In particular, I show that the relaxation of financial constraints allowed talented individuals to acquire education and leave the uneducated pool, decreased unskilled-inexperienced wages and this in turn boosted wage inequality. The model accounts for: (i) the increase on the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising wage inequality related to the increase on the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of the increasing experience premium within the group of unskilled workers and its flat pattern among the skilled ones. The theoretical results are robust to empirically plausible extensions of the model and are still valid when the static model extends to a dynamic three-period OLG framework, which fits better the demography of the Current Population Survey. Importantly, this paper provides some interesting policy implications about the potential conflict between wage inequality and inequality of opportunity, as well as the role of minimum wage policy in determining the equilibrium wage inequality.
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01 Jan 2008
TL;DR: The existence of an impact of HIV on labor market participation is hotly debated in South Africa as mentioned in this paper, and the authors of this paper provide an analysis of the impact of the HIV on employment.
Abstract: The existence of an impact of HIV on labor market participation is hotly debated in South Africa. Some argue that HIV is a severe constraint on current economic growth because those who are too ill to work represent lost economic output. Others argue that because unemployment is so high (in the 30 to 40 percent range according to the broad definition1), HIV has minimal economic impact today. Proponents of this view note that the sex-age cohorts with the highest unemployment are essentially the same as those with the highest HIV prevalence rates.2 Our estimates speak directly to this issue. This paper provides ∗Special thanks to John DiNardo, Taryn Dinkelman, Justin McCrary, Nicoli Natrass, Jeff Smith, and Duncan Thomas for especially helpful comments and suggestions. Levinsohn acknowledges support from the NICHD. The broad definition of unemployment includes individuals who desired employment but had no job search activity within the past month (i.e. discouraged workers). Another argument that HIV has a minimal impact on employment is that with anti-retroviral (ARV) therapy, HIV+ individuals are not likely to be too sick to work, and hence HIV has only a minimal impact on labor market participation. As discussed below, this argument, while germane to some countries, is probably not highly relevant to South Africa in 2005.
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Abstract: How does the rate at which firms adopt new technologies affect the level of education and training of a country’s workforce? What is then the mix of general education and technology-specific training that maximises the growth rate of an economy? We try to answer these questions by developing an endogenous growth model which focuses on privately financed general education and firm financed technology specific training in a setting where creative destruction renders technologies gradually obsolete. We reproduce some stylized facts regarding the technology-education-training relationship and we show how the optimum amount of time devoted to education and training is affected by the rate of technical change itself. In particular, we find that a faster arrival of new technologies shifts the private knowledge portfolio towards general human capital, less prone to creative destruction. We also find that households tend to under-invest in education, thus leading to lower growth rates than technically feasible, and higher training costs than absolutely necessary. This suggests that there is room for education policy reducing private education fees.
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24 Nov 2016
TL;DR: In this paper, the authors examined the relationship between teacher evaluations and pupil performance gains in primary education and found that the score on a detailed observation rubric measuring pedagogical, didactical and classroom organization competences of teachers significantly predicts pupil performance gain on standardized tests in math, reading and spelling.
Abstract: textTeacher quality is key to the performance of pupils in education. Improvements in teacher quality can therefore generate large returns. It is less clear however what drives teacher quality and how the quality of teachers can be improved. This dissertation aims to provide more insight into the determinants of teacher quality and the effectiveness of policies that aim to improve teacher quality. The first paper examines the relationship between teacher evaluations and pupil performance gains in primary education. It is shown that the score on a detailed observation rubric measuring pedagogical, didactical and classroom organization competences of teachers significantly predicts pupil performance gains on standardized tests in math, reading and spelling. The observation rubric particularly seems to have potential to identify the weaker teachers. The second paper investigates the effects of schooling vouchers for teachers by employing a fuzzy regression discontinuity design. Effects of voucher assignment on both higher education enrollment and completion rates are in the order of 10 to 20 percentage points, suggesting substantial crowding out. The third paper investigates the effects of higher teacher pay for secondary school teachers on their teacher retention decision and enrollment in additional schooling. This is done by exploiting regional variation in teacher pay that is induced by the introduction of a new teacher remuneration policy that provided schools in an urbanized region with extra funds to place a larger share of their teachers in a higher salary scale. No effects are found on the probability of remaining in the teaching profession. The policy however succeeded in keeping a slightly larger share of teachers in the targeted region. In addition, the findings suggest that the policy slightly increased teachers’ participation in continuous schooling. The fourth paper investigates the effect of an intensive coaching program aimed at reducing school dropout rates among students in post-secondary vocational education. The coaching program was set up as a randomized experiment. I find that one year of coaching reduced school dropout rates by more than 40 percent. Cost-benefit analysis suggests that one year of coaching is likely to yield a net social gain.
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TL;DR: In this paper, the authors studied how optimal wage tax conclusions from the classic two-period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers.
Abstract: This paper studies how optimal wage tax conclusions from the classic two-period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. A combination of wage taxes and wage subsidies can restore proper price signals. Numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates. (JEL H21, H3, J24)
1 citations