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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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01 Sep 2005
TL;DR: In this paper, the authors investigated the youth labor market in the MENA region in order to identify factors contributing to the persistently high rates of unemployment and joblessness among MENA youth.
Abstract: This paper investigates the youth labor market in the MENA region in order to identify factors contributing to the persistently high rates of unemployment and joblessness among MENA youth. The paper undertakes three parallel lines of inquiry. First, the paper reviews characteristics and trends related to the youth labor market. Second, it reviews findings from the research literature in order to identify determinates of labor market outcomes for youth. Third, it surveys data from Egypt and Morocco to address additional questions about the youth employment situation. This paper suggests that several regional factors may be contributing to the high rates of unemployment and joblessness among MENA youth: strong labor supply pressures, rising female labor force participation rates, and labor market rigidities that may be interacting with these two factors.
59 citations
TL;DR: In this paper, the authors use the inter-generational module in the 2005 EU-SILC to estimate intergenerational mobility trends for sons both indirectly, via social origin effects on educational attainment, and directly in terms of adult income attainment.
59 citations
26 Nov 2001
TL;DR: This article studied the relationship between education and wages and found that the effect of higher levels of education varies over time according to the observable and unobservable differences between individuals according to their educational attainment.
Abstract: This report details research on the relationship between education and wages. The work is largely based on the Labour Force Surveys 1992-2000 and the focus of the
research is largely on academic education.
The report contains microeconometric estimates of the relationship between (log) wages and years of education and allows: for this relationship to be non-linear, so as
to separately identify the effect of higher levels of education from the effect of earlier years; for the relationship to shift over time so we provide estimates that show how returns to education vary over time; and for the relationship to vary across individuals according to their observable and unobservable differences. Separate results for men and women are presented.
The LFS data is large and this enables separate analysis of particular groups of individuals. In particular, the report contains microeconometric estimates of the effects of a degree on wages and allows for: different degree subjects to have differential effects; “sheepskin” effects associated with years of education that yield a
qualification; and different lengths of study. Separate results for men and women are presented.
In addition to estimating the mean effect of education on wages we also estimate the variance in returns around this mean. There are two complementary ways in which we pursue this. In the first method, estimation is by “quantile regression” methods to estimate the effect on different parts of the wage distribution. We are particularly
concerned to show the extent to which the returns to education differ across the wage distribution. If the average ability of graduates has fallen over time then we might see this reflected in the size of the returns across quartiles of the wage distribution. The second method estimates a “random coefficients” model. Instead of assuming that the effect of education is the same for all individuals this model assumes that the effect differs (randomly) across individuals. The model estimates the mean effect of education and the variance around this mean. Again, by estimating the models for each separate year it is possible to see if the variance is getting larger over time. The modelling controls for observable differences in returns across individuals.
59 citations
TL;DR: This paper used microdata from the International Adult Literacy Survey to construct quality adjusted measures of schooling attained at different time periods and use these along with international literacy test information to estimate returns to skills for 13 countries.
Abstract: Returns to education are traditionally estimated in a Mincer wage equation from the variation in schooling for a cross-section of individuals of different ages. Because individuals receive education at different time periods, when the quality of their education may not be identical, this method leads to an over- or under-estimation of the return to education of a given quality depending on how education quality evolves over time. This quality issue interacts with ability bias from self-selection into schooling and is particularly problematic when comparing returns across different countries. Using microdata from the International Adult Literacy Survey, we construct quality adjusted measures of schooling attained at different time periods and use these along with international literacy test information to estimate returns to skills for 13 countries. Estimated returns to quality-adjusted education are considerably higher than the traditional estimate for most countries, but these are offset to varying degrees by selection biases on ability. The combined corrections alter significantly the pattern of returns to schooling and skill seen from naive Mincer wage equations.
59 citations
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TL;DR: In this article, the authors use the control function approach to identify the average treatment effect and the effect of treatment on the treated in models with a continuous endogenous regressor whose impact is heterogeneous.
Abstract: We use the control function approach to identify the average treatment effect and the effect of treatment on the treated in models with a continuous endogenous regressor whose impact is heterogeneous. We assume a stochastic polynomial restriction on the form of the heterogeneity but, unlike alternative nonparametric control function approaches, our approach does not require large support assumptions.
59 citations