Posted Content•
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.
Citations
More filters
31 Dec 2005
Posted Content•
01 Jan 2010
TL;DR: In this article, the educational and occupational performances of male and female students do differ: girls outperform boys in academic achievement, but male graduates outperform female graduates in labour market outcomes.
Abstract: We analyse the academic performance of Italian students who graduated in 2004, and their occupational status and earnings in 2007. We find that the educational and occupational performances of male and female students do differ: girls outperform boys in academic achievement, but male graduates outperform female graduates in labour market outcomes. One could wonder why female students put more effort into educational performance than male students, given that they will receive lower wages. We find a rationale for this choice in the higher marginal return that female students gain from their higher grades. We address our empirical analysis to four points: first, we show that, for the most part, the difference in educational performance is explained by the diversity in unobserved characteristics between male and female students. Second, we provide empirical evidence that the amount of effort supplied is the key determinant of the unobserved characteristics. Third, we argue that female students study hardly because they gain a higher marginal return from success in educational competition. Fourth, as this finding may be consistent with both human capital and sorting models of education, we test the hypothesis that female students use their higher grades to signal their ability to potential employers.