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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 studied the wage structure in the German labor market throughout the years 1992-2001 and concluded that differences in the composition of the work force only had a small impact on observed wage differentials between East and West Germany, but changes in the characteristics captured better parts of the observed wage changes over time.
Abstract: Using register data from the IAB employment sample, this paper studies the wage structure in the German labor market throughout the years 1992-2001. Wage dispersion has generally been rising. The increase was more pronounced in East Germany and occurred predominantly in the lower part of the wage distribution for women and in the upper part for men. Censored quantile wage regressions reveal diverse age and skill patterns. Applying Machado/Mata (2005)-type decompositions I conclude that differences in the composition of the work force only had a small impact on the observed wage differentials between East and West Germany, but changes in the characteristics captured better parts of the observed wage changes over time.

76 citations

01 Jan 2009
TL;DR: In this paper, the authors analyse the role played by the different components of human capital in the wage determination of recent immigrants within the Spanish labour market and examine the impact on wages of the legal status.
Abstract: The aim of this paper is to analyse the role played by the different components of human capital in the wage determination of recent immigrants within the Spanish labour market. Using microdata from the Encuesta Nacional de Inmigrantes 2007, the paper examines returns to human capital of immigrants, distinguishing between human capital accumulated in their home countries and in Spain. It also examines the impact on wages of the legal status. The evidence shows that returns to host country sources of human capital are higher than returns to foreign human capital, reflecting the limited international transferability of the latter. The only exception occurs in the case of immigrants from developed countries and immigrants who have studied in Spain. Whatever their home country, they obtain relatively high wage returns to education, including the part not acquired in the host country. Having legal status in Spain is associated with a substantial wage premium of around 15%. Lastly, the overall evidence confirms the presence of a strong heterogeneity in wage returns to different kinds of human capital and in the wage premium associated to the legal status as a function of the immigrants� area of origin.

76 citations

Journal ArticleDOI
TL;DR: The authors used data on refugees admitted to The Netherlands that include registration of education in their homeland by immigration officers and investigated the quality and reliability of the registrations and then used them to assess effects on refugees’ economic position during the first 5 years after arrival.
Abstract: We use data on refugees admitted to The Netherlands that include registration of education in their homeland by immigration officers. Such data are seldom available. We investigate the quality and reliability of the registrations and then use them to assess effects on refugees’ economic position during the first 5 years after arrival. The most remarkable finding is the absence of returns to higher education.

75 citations

Journal ArticleDOI
Christian Belzil1
TL;DR: A survey of the recent literature devoted to the returns to schooling within a dynamic structural framework can be found in this paper, where the authors compare the structural approach with the IV (experimental) approach and argue that the distinction between the IV approach and structural approach may be coined in terms of a tradeoff between behavioral and statistical assumptions.

75 citations

Journal ArticleDOI
TL;DR: This article found that controlling for individual fixed effects generally reduces the estimated returns to an MBA, particularly for those in top programs, and that for full-time MBA students attending schools outside of the top-25 the estimated return is higher when they control for individually fixed effects.
Abstract: Because MBA programs require work experience before admittance, prior wages can be exploited to disentangle the return to the degree from unobserved productivity. We find that controlling for individual fixed effects generally reduces the estimated returns to an MBA, particularly for those in top programs. However, for full-time MBA students attending schools outside of the top-25 the estimated returns are higher when we control for individual fixed effects. We show that there is some evidence that those who take the GMAT but do not obtain an MBA are stronger in dimensions such as workplace skills that are not easily measured.

75 citations