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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: This article examined the evolution of the earnings premia to university, college, and trades education over a 20-year period of rapid economic change, using Census data from 1980 to 2000.
Abstract: By international standards, the level of educational attainment in Canada is exceptionally high, with the proportion of adult Canadians holding postsecondary educational certificates being more than twice the OECD average. This remarkable ranking is primarily the result of high participation in non-university postsecondary educational sectors: colleges, trades institutions, and other vocational educators. While the non-university postsecondary education (PSE) sector is clearly important in terms of both the quantity and the qualitative nature of human capital it produces, it has received very little attention in the academic literature , which has tended to focus on the outcomes of university graduates. This paper uses Census data from 1980 to 2000 to examine the evolution of the earnings premia to university, college, and trades educat i o n over a 20-year period of rapid economic change. Examining this evolution is a prerequisite to understanding the behaviour of participation in the various postsecondary education streams and to the appropriate conduct of educational and labour market policy.
65Â citations
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TL;DR: This article found that a ten percentage point increase in the corporate tax rate of high-income countries reduces mean annual gross wages by seven percent, which supports the common belief that the burden of corporate taxes falls most heavily on skilled labor.
Abstract: High rates of corporate taxation reduce corporate investment and thereby depress local wages. Using cross-country data from the Luxembourg Income Study, I estimate that a ten percentage point increase in the corporate tax rate of high-income countries reduces mean annual gross wages by seven percent. The results do not support the common belief that the burden of corporate taxes falls most heavily on skilled labor; corporate taxation appears to reduce the wages of low-skill workers to the same degree that it reduces the wages of high-skill workers. Interactions between corporate tax rates and measures of economic openness suggest that firms more effectively avoid corporate taxes as the economy becomes more open. The inefficiency of taxing corporate income, together with the incidence of the tax in the form of reduced wages, suggests that taxing labor instead of taxing corporations could be Pareto-improving.
65Â citations
TL;DR: Using a Mincer-type wage function, the authors estimate cohort effects in the returns to education for West German workers born between 1925 and 1974, and find a large and robust decline in schooling premia.
Abstract: Using a Mincer-type wage function, we estimate cohort effects in the returns to education for West German workers born between 1925 and 1974. The main problem to be tackled in the specification is to separately identify cohort, experience, and possibly also age effects in the returns. For women, we find a large and robust decline in schooling premia: in the private sector, the returns to a further year of post-compulsory education fell from twelve per cent for the 1945-49 cohort to about seven per cent for those born in the early 1970s. Cohort effects in men's returns to education are less obvious, but we do find evidence that they, too, have declined. We conclude by identifying possible reasons for the decline.
65Â citations