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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 test the hypothesis that unemployment experienced in high unemployment regions is less likely to be viewed by employers as a negative productivity signal, and more as a characteristic of the region.
Abstract: I test the hypothesis that unemployment experienced in high unemployment regions is less likely to be viewed by employers as a negative productivity signal, and more as a characteristic of the region. This predicts that unemployment's short-run negative wage effects will be mitigated if experienced in high unemployment regions. If so, then what long-term implications does this have for future wage growth (Wage Scarring)? How important is regional heterogeneity in driving wage outcomes? Continuous work-life histories are matched to the regional context in which individuals reside. This novel data set permits control for the timing of career disruptions, as well as regional location at the time of displacement, whilst searching and at re-employment. Persistent wage penalties are found, conditional on previous labour market status. Seminal UK research concludes that the first spell of non-employment carries the highest penalty. Considering unemployment and inactivity, no reduction in the penalty associated with incidence of inactivity is found. Strong regional differences are found in the impact of redundancy on wage growth. This is contingent on labour market tight-ness and urbanity of the region in which unemployment was experienced. Redundancy followed by unemployment in areas of high economic activity is equally damaging for future earnings potential, independent of age. Moreover, robust evidence is found supporting the main hypothesis in the UK, on average and for over 45s made redundant in their previous jobs.
1 citations
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TL;DR: In this paper, the authors show that the return-to-school parameter can be identified at any point in the life-cycle, provided that the level of skills accumulated beyond school completion for compliers is exactly equal to the post-schooling skill level of non-compliers (the Skill-Equality condition).
Abstract: We show that within a life-cycle skill accumulation model, IV identification of the return to schooling parameter is either achieved at any point in the life-cycle where the level of skills accumulated beyond school completion for compliers is exactly equal to the post-schooling skill level of non-compliers (the Skill-Equality condition), or when the skill-ratio is equal to the relative population proportions of non-compliers over compliers (the Weighted-Skill-Ratio condition). As a consequence, it is generally impossible to tie IV identification to any specific phase of the life-cycle and there cannot exist a generally acceptable "optimal" age to sample earnings for IV estimation. The practical example developed in the paper shows precisely how an instrument may fulfill identification at a multiplicity of ages, and how different instruments may achieve identification with specific sampling designs and fail to do so with others. Within a life-cycle skill accumulation data generating process, identification of the return to schooling requires not only implicit assumptions about the underlying model, but also assumptions about the validity of the specific age sampling distribution implied by the data.
1 citations
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TL;DR: In this article, the decision of undergraduate students to engage in paid employment during their academic semester was examined and the decision to work as part of the human capital earnings function and examined how term time employment affects academic performance.
Abstract: This paper examines the decision of undergraduate students to engage in paid employment during their academic semester. We present the decision to work as part of the human capital earnings function and examine how term time employment affects academic performance. Using a unique dataset, we exploit individual-level variation in employment status and work hours to build a differencing model to show that term time employment has a modest negative effect on grade point average. An individual who increases their work effort by one hour per week reduces their grade point average by about 0.007 points.
1 citations
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TL;DR: The authors found that gaps in both skill levels and returns account for the lack of high wage male workers in the U.S., and that widening wage inequality between Appalachia and the rest of the U., owes to a shortage of skilled cities.
Abstract: Despite evidence that skilled labor is increasingly concentrated in cities, whether regional wage inequality is predominantly due to differences in skill levels or returns is unknown. We compare Appalachia, with its wide mix of urban and rural areas, to other parts of the U.S., and find that gaps in both skill levels and returns account for the lack of high wage male workers. For women, skill shortages are important across the distribution. Because rural wage gaps are insignificant, our results suggest that widening wage inequality between Appalachia and the rest of the U.S. owes to a shortage of skilled cities.
1 citations
01 Jan 2004
TL;DR: In this paper, the authors distinguish between skill-biased technological change hypothesis and over-education hypothesis, and investigate the changing occupational skill requirements by investigating the change in skill requirements, showing that skill requirements did keep pace with rising educational supplies.
Abstract: Both the skill-biased technological change hypothesis and the over-education hypothesis are consistent with the observed increased proportion of high-educated employees, but each has dierent predictions regarding occupational skill requirements. The analysis distinguishes between these two hypotheses by investigating the changing occupational skill requirements. It shows that changes in occupational skill requirements did keep pace with rising educational supplies. Skill requirements rose within occupations, even in those that were the least demanding in 1979. In addition, the analysis shows that workplace computerization is complementary to non-routine cognitive task, and substitutes for cognitive and manual routine tasks.
1 citations