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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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TL;DR: In this article, the authors extended the existing literature by employing propensity score matching with a sensitivity analysis using Rosenbaum bounds and found that teenage mothers tend to have worse socioeconomic outcomes than other women who delay childbearing.
Abstract: A large body of literature has documented a negative correlation between teenage childbearing and teen mothers' socioeconomic outcomes, yet researchers continue to disagree as to whether the association represents a true causal effect. This article extends the extant literature by employing propensity score matching with a sensitivity analysis using Rosenbaum bounds. The analysis of recent cohort data from the National Longitudinal Study of Adolescent Health shows that (1) teenage childbearing has modest but significant negative effects on early socioeconomic outcomes and (2) unobserved covariates would have to be more powerful than known covariates to nullify the propensity score matching estimates. The author concludes by suggesting that more research should be done to address unobserved heterogeneity and the long-term effects of teenage childbearing for this young cohort. (ProQuest: ... denotes formula omitted.) 1. Introduction The longstanding literature on teen motherhood has documented its detrimental life cycle consequences. Teen mothers tend to have worse socioeconomic outcomes than other women who delay childbearing (An, Haveman, and Wolfe 1993; Hofferth and Hayes 1987). Despite this evidence, it is still unclear whether these negative outcomes among teen mothers result from the incidence of childbearing per se or from the socioeconomic disadvantages these women faced before they became teen mothers. While human capital theory holds that teenage childbearing has a real causal effect on socioeconomic outcomes because it directly interferes with adolescents' investment in human capital (Becker 1993), the selection view contends that teenage childbearing is associated with negative outcomes because it occurs mostly among disadvantaged female adolescents (Geronimus, Korenman, and Hillemeier 1994). Indeed, the concern about selection bias points out that isolating the effect of teen motherhood creates a considerable methodological challenge (Winship and Mare 1992; Winship and Morgan 1999): If both observed and unobserved preexisting characteristics of teen mothers account for the relationship between teenage childbearing and its socioeconomic consequences, assertions of causality become questionable. A large body of research has addressed the selection bias problem by finding better comparison groups for women who give birth in their teens (Cherlin 2001; Hoffman 1998; Korenman, Kaestner, and Joyce 2001; Wu and Wolfe 2001). For example, within-family fixed-effects models compare teen mothers with their sisters who gave birth after their teenage years to control for unobserved family-level heterogeneity (Geronimus and Korenman 1992). Quasi-natural experimental approaches approximate randomization procedures by treating twin births or miscarriages as comparison cases (Grogger and Bronars 1993; Hotz, McElroy, and Sanders 1997). Finally, instrumental variables methods utilize variables that capture the exogenous component of teenage childbearing to mitigate the selection bias problem (Klepinger, Lundberg, and Plotnick 1999). Despite their intuitive appeal, all of these models have their own drawbacks. It is not uncommon to find that they are grounded on somewhat strong assumptions and/or unrepresentative samples, with mixed results at best. Thus, evaluating the "true" effects of teenage childbearing remains an elusive goal. In this article, I extend the previous literature in three distinct ways. First, I use a propensity score matching approach to identify the early socioeconomic effects of teenage childbearing. Following the counterfactual framework (Rosenbaum and Rubin 1983; Rubin 1977), this approach matches teen mothers ("treatment" group) to those who are not teen mothers but similar in all other preexisting observed characteristics ("control" group), based on a propensity to give birth as teens. Then it compares various socioeconomic outcomes between these two groups using semi-parametric estimators. …

97 citations

Journal ArticleDOI
TL;DR: In this article, a systematic review of published data on the performance of sub-Saharan Africans on the Raven's Progressive Matrices is presented, where the specific goals were to estimate the average level of performance, to study the Flynn Effect in African samples, and to examine the psychometric meaning of Raven's test scores as measures of general intelligence.

97 citations

Posted Content
TL;DR: Some of the work on directed acyclic graphs, including the recent "The Book of Why," by Pearl and MacKenzie, and the potential outcome framework developed by Rubin and coauthors are reviewed.
Abstract: In this essay I discuss potential outcome and graphical approaches to causality, and their relevance for empirical work in economics I review some of the work on directed acyclic graphs, including the recent "The Book of Why," by Pearl and MacKenzie I also discuss the potential outcome framework developed by Rubin and coauthors, building on work by Neyman I then discuss the relative merits of these approaches for empirical work in economics, focusing on the questions each answer well, and why much of the the work in economics is closer in spirit to the potential outcome framework

97 citations

Journal ArticleDOI
TL;DR: In this paper, a new sample of UK female identical twins was used to estimate private economic returns to education, and the results suggest a return to schooling for UK females of about 7.7%.
Abstract: We use a new sample of UK female identical twins to estimate private economic returns to education. We report findings in three areas. First, we use identical twins, to control for family effects and genetic ability bias, and the education reported by the other twin to control for schooling measurement error. Our estimates suggest a return to schooling for UK females of about 7.7%. Second, we investigate within-twin pair ability differences by examining within-twin pair and between-family correlations of education with observable correlates of ability (including birthweight, ability tests and reading scores). Our findings suggest lower ability bias in within-twin pair regressions than pooled regressions. Third, using data on twins smoking we show smoking reflects family background and using it as an instrument exacerbates ability bias.(This abstract was borrowed from another version of this item.)

96 citations

Journal ArticleDOI
TL;DR: The authors assess the potential contribution of a rise in the return to unmeasured productivity correlated with education and race to the dramatic increase in the college high school wage gap and the stagnation of black white wage convergence during the 1980s.

95 citations