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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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Journal ArticleDOI
TL;DR: The authors combine quality-adjusted measures of schooling and international literacy test information to estimate skill gradients for 13 countries and find that the premiums to quality adjusted education are considerably higher than the traditional Mincer estimate for most countries.
Abstract: Mincer wage equations focus on the earnings premium associated with additional schooling for a cross section of individuals of different ages but generally fail to account for changes in education quality over time. More fundamentally, school attainment is an inadequate proxy of individual skills, when both family inputs and ability affect cognitive skills. We combine quality‐adjusted measures of schooling and international literacy test information to estimate skill gradients for 13 countries. The premiums to quality‐adjusted education are considerably higher than the traditional Mincer estimate for most countries, but this bias is more than offset by consideration of other factors affecting skills and earnings.

118 citations

Journal ArticleDOI
TL;DR: This article showed that a larger share of Protestants decreased the gender gap in basic education in the first Prussian census of 1816, using only the exogenous variation in Protestantism due to a county's or town's distance to Wittenberg, the birthplace of the Reformation.
Abstract: Martin Luther urged each town to have a girls' school so that girls would learn to read the Gospel, thereby evoking a surge of building girls' schools in Protestant areas. Using county- and town-level data from the first Prussian census of 1816, we show that a larger share of Protestants decreased the gender gap in basic education. This result holds when using only the exogenous variation in Protestantism due to a county's or town's distance to Wittenberg, the birthplace of the Reformation. Similar results are found for the gender gap in literacy among the adult population in 1871.

118 citations

Journal ArticleDOI
TL;DR: In this article, two main methods for estimating the value of the stock of human capital (henceforth human capital) are presented, the retrospective and prospective one, with a review of the models proposed.
Abstract: After a short history of the concept of human capital (henceforth HC) in economic thought (Section 1), this study presents the two main methods for estimating the value of the stock of HC – the retrospective and prospective one – with a review of the models proposed (Section 2). These methods are linked both to the theory of HC investment as a rational choice (Section 3), the literature analysing the contribution of HC investment to economic growth and the HC estimating method through educational attainment (Section 4). The more recent literature on HC as a latent variable is also assessed (Section 5) and a new method of estimation where HC is seen both as an unknown function of formative indicators and as a ‘latent effect’ underlying earned income is proposed (Section 6). Section 7 concludes.

118 citations

Journal ArticleDOI
TL;DR: In this article, the authors experimentally analyzed the schooling decisions of poor households in urban Brazil and elicit parents' choices between monthly government transfers conditional on their adolescent child attending school and guaranteed, unconditional transfers of varying sizes.
Abstract: This paper experimentally analyzes the schooling decisions of poor households in urban Brazil. We elicit parents’ choices between monthly government transfers conditional on their adolescent child attending school and guaranteed, unconditional transfers of varying sizes. In the baseline treatment, an overwhelming majority of parents prefer conditional transfers to larger unconditional transfers. However, few parents prefer conditional payments if they are offered text message notifications whenever their child misses school. These findings suggest important intergenerational conflicts in these schooling decisions, a lack of parental control and observability of school attendance, and an additional rationale for conditional cash transfer programs—the monitoring they provide.

118 citations

Posted Content
TL;DR: In this paper, the authors developed a comprehensive framework for the quantitative analysis of the private and fiscal returns to schooling and of the effect of public policies on private incentives to invest in education.
Abstract: This paper develops a comprehensive framework for the quantitative analysis of the private and fiscal returns to schooling and of the effect of public policies on private incentives to invest in education. This framework is applied to 14 member states of the European Union. For each of these countries, we construct estimates of the private return to an additional year of schooling for an individual of average attainment, taking into account the effects of education on wages and employment probabilities after allowing for academic failure rates, the direct and opportunity costs of schooling, and the impact of personal taxes, social security contributions and unemployment and pension benefits on net incomes. We also construct a set of effective tax and subsidy rates that measure the effects of different public policies on the private returns to education, and measures of the fiscal returns to schooling that capture the long-term effects of a marginal increase in attainment on public finances under conditions that approximate general equilibrium.

117 citations