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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 found that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent.
Abstract: When students fund their education through loans, changes in student borrowing and tuition are interlinked. Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs — for example, by relaxing students’ funding constraints. To resolve this simultaneity problem, we exploit detailed student-level financial data and changes in federal student aid programs to identify the impact of increased student loan funding on tuition. We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong. The subsidized loan effect on tuition is most pronounced for expensive, private institutions that are somewhat, but not among the most, selective.
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TL;DR: In this article, the authors analyze the value of a full refund policy to consumers and find that the value is not as large as one might expect, and also exhibits a large heterogeneity across buyers with different levels of online purchase experience.
69 citations
TL;DR: In this paper, the authors present a comparative study of private returns to schooling of urban men in Egypt, Iran, and Turkey using similar survey data and a uniform methodology, and learn how the monetary signals of rewards that guide individual decisions to invest in education are shaped by the institutions of education and labor markets in these countries.
Abstract: This paper presents a comparative study of private returns to schooling of urban men in Egypt, Iran, and Turkey using similar survey data and a uniform methodology. We employ three surveys for each country that span nearly two decades, from the 1980s to 2006, and, to increase the comparability of the estimates across surveys, we focus on urban men 20–54 years old and in full time wage and salary employment. Our aim is to learn how the monetary signals of rewards that guide individual decisions to invest in education are shaped by the institutions of education and labor markets in these countries. Our estimates generally support the stylized facts of the institutions of education and labor markets in Middle Eastern countries. Their labor markets have been described as dominated by the public sector and therefore relatively inflexible, and their education systems as more focused on secondary and tertiary degrees than teaching practical and productive skills. Returns in all countries are increasing in years ...
69 citations
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TL;DR: In this paper, the authors describe various forms of tangible and intangible human capital, their relationship to "capabilities" affecting human well-being, and the channels through which they may contribute to economic growth.
Abstract: This monograph, which has been prepared as a Research Report to the New Zealand (New Zealand) Treasury, undertakes three main tasks: (1) describing the various forms of tangible and intangible human capital, their relationship to "capabilities" affecting human well-being, and the channels through which they may contribute to economic growth; (2) reviewing the major theoretical and empirical findings on the microeconomic determinants, and macroeconomic growth effects of investment in human capital; (3) reviewing salient general implications for policies affecting human capital, and indicating measures specifically germane to the situation of the New Zealand economy. For these purposes, the concept of human capital is defined comprehensively, so that it embraces capacities for interpreting flows of sensory data and structured information required for goal-directed individual actions and inter-personal transactions, and for providing various physical labour service- inputs in ordinary production processes. More conventionally, it subsumes the creative faculties for generating new scientific and technological knowledge, the cognitive basis of entrepreneurship, and the competences for managing market and non-market production as well as household consumption activities. The report is organised in three main Parts that address the three major objectives, taking each in its turn. A detailed Table of Contents and an Executive Summary precede the text, which is followed by extensive bibliographic references. A unifying conceptual framework is developed to (a) identify the micro-level processes involved in human capital formation; (b) implicitly aggregate the resulting qualities and capabilities of individuals belonging to successive population cohorts; (c) trace the interrelated influences that the forms of human capital have upon macroeconomic performance. The review of empirical evidence at the macroeconomic level features a discussion of the deficiencies of data and methods in many of the international cross-section studies, and contrasts recent econometric findings on the role of education in economic growth among the developed economies with the conclusions derived through more detailed analyses of their historical experiences. Significant policy implications do emerge from the modern macroeconomic growth literature, but these are very broad in nature and not particularly germane to the situation of small, open economies that may lack a substantial industrial base or the extensive human and institutional infrastructure required to generate the knowledge-base needed for their peoples' well-being and their firms' competitive success in international markets. Nor does the received literature adequately treat the implications of such economies' potential to rapidly alter their respective human resource endowments through differential population migration. Consideration of human capital policies geared more closely to the specific challenges and opportunities facing New Zealand's economy leads to the formulation of a number of novel proposals. These would reform tax treatment of education and training investments by residents and immigrants alike; subsidise new voluntary institutions developing on-the-job training programs under industry sponsorship; undertake public information infrastructure investments in order to reduce the costs of effective access to global knowledge bases in science and technology. Proposals also are considered for integrated government programmes to accelerate the closing of persistent socio-economic disparities within New Zealand society, such as those between Maori and non-Maori.
69 citations
TL;DR: In this article, an instrument variable approach was used to address the endogeneity of education and found a significant and substantial effect of an added year of primary education on entrepreneurial profitability, consistent with theoretical arguments that primary schooling provides a generalised form of competence that underpins the variety of skills an entrepreneur needs to succeed in business.
Abstract: This paper estimates the effect of education on the success of entrepreneurial activity, using survey data from Malawi. An instrument variable approach is used to address the endogeneity of education. We find a significant and substantial effect of an added year of primary education on entrepreneurial profitability. This is consistent with theoretical arguments that primary schooling provides a generalised form of competence that underpins the variety of skills an entrepreneur needs to succeed in business. Results are robust to non-random selection into entrepreneurship.
68 citations