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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: The authors examined the relationship between the incentives to work and to invest in human capital through education in a lifecycle optimizing model and found that these incentives are mutually reinforcing in a simple stylized model.
Abstract: This paper examines the relationship between the incentives to work and to invest in human capital through education in a lifecycle optimizing model. These incentives are shown to be mutually reinforcing in a simple stylized model. This theoretical prediction is investigated empirically using three large micro datasets covering a broad range of countries. As one might expect, education and work are strongly positively correlated. This correlation has important implications for models of fiscal policy and economic growth. It also has important implications for the estimation of labor supply and the rate of return to education.
110 citations
TL;DR: In this paper, the authors examined the relationship between education, entrepreneurship, and businesses outcomes, and considered simultaneously both the education of the entrepreneur and of the workforce where the entrepreneurs operate their businesses, finding that more educated entrepreneurs tend to be located in metropolitan areas with more educated workforces.
109 citations
TL;DR: The authors found that numeracy has a highly significant effect on earnings, mostly through its effect on college attainment, but also directly, controlling for attainment and interactively with attainment, and its effect may be subject to increasing returns.
109 citations
TL;DR: This article provided the first causal estimate of the impact of attending SEED schools on academic achievement, with the goal of understanding whether changing a student's environment is an effective strategy to increase achievement among the poor.
Abstract: The SEED schools, which combine a “No Excuses” charter model with a 5-day-a-week boarding program, are America’s only urban public boarding schools for the poor. We provide the first causal estimate of the impact of attending SEED schools on academic achievement, with the goal of understanding whether changing a student’s environment is an effective strategy to increase achievement among the poor. Using admission lotteries, we show that attending a SEED school increases achievement by 0.211 standard deviation in reading and 0.229 standard deviation in math per year. However, subgroup analyses show that the effects may be driven by female students.
109 citations
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TL;DR: In this article, a new methodology was proposed to measure opportunity inequality and to decompose overall inequality in an "ethically offensive" and an "entirely acceptable" part, which was used to compare the income distributions of South and North of Italy on the basis of a measure of opportunity inequality.
Abstract: In this paper we provide a new methodology to measure opportunity inequality and to decompose overall inequality in an "ethically offensive" and an "ethically acceptable" part. Moreover, we provide some empirical applications of these new evaluation tools: in the first exercise, we compare the income distributions of South and North of Italy on the basis of a measure of opportunity inequality. Then, we repeat the exercise using the cognitive abilities in a sample of 15-year old students. In both circumstances we find that the less developed regions in the South are characterized by greater incidence of inequality of opportunity.
108 citations