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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.
Citations
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Journal ArticleDOI
TL;DR: The authors measured selection among high-skilled emigrants from Germany using predicted earnings and found that migrants to less equal countries were positively selected relative to nonmigrants, while migrants to more equal countries are negatively selected, consistent with the prediction in Borjas.
Abstract: We measure selection among high-skilled emigrants from Germany using predicted earnings. Migrants to less equal countries are positively selected relative to nonmigrants, while migrants to more equal countries are negatively selected, consistent with the prediction in Borjas (1987). Positive selection to less equal countries reflects university quality and grades, and negative selection to more equal countries reflects university subject and gender. Migrants to the United States are highly positively selected and concentrated in STEM fields. Our results highlight the relevance of the Borjas model for high-skilled individuals when credit constraints and other migration barriers are unlikely to be binding.

57 citations

Journal ArticleDOI
01 Mar 2007-Labour
TL;DR: In this article, the authors used a representative sample of the Russian Federation, the Russian Longitudinal Monitoring Survey, to estimate the returns to education in this ex-communist country, with the realistic expectation of obtaining results for Russia comparable to those available in developed countries and other economies in transition.
Abstract: . This paper uses a representative sample of the Russian Federation, the Russian Longitudinal Monitoring Survey, to estimate the returns to education in this ex-communist country. We tackle this classic issue in labor economics with the realistic expectation of obtaining results for Russia comparable in quality and reliability to those available in developed countries and other economies in transition. Using standard regression techniques we find that the returns to education in Russia are quite low compared with those reported in the literature on countries throughout the world, in almost no specification reaching higher than 5 per cent. Moreover, there is virtually no improvement in returns to education in the 1992–99 period, a result somewhat at odds with other studies using Russian data from similar time periods. When we instrument our main regressor using policy experiments from the 1960s, we find comparable results. We also perform a selectivity correction and discover even lower returns to education for men, although they become slightly higher for women. Additionally, we find extremely low returns to tenure, which can even become negative in certain specifications.

57 citations

Journal ArticleDOI
TL;DR: In this article, a framework for evaluating the decision of undergraduate students to engage in term-time employment as a method of financing higher education is presented, and the impact of work on academic achievement is examined.
Abstract: This article outlines a framework for evaluating the decision of undergraduate students to engage in term-time employment as a method of financing higher education. We then examine the impact of work on academic achievement and find that employment has modest negative effects on student grades, with a grade point average (GPA) falling by 0.007 points per work hour. We use a unique custom dataset based on students at a traditional regional state university that provides information on student motivations and allows us to directly address some of the endogeneity problems that affect existing literature. We find that students who work for primarily financial reasons earn lower grades than students who work for career-specific skills but higher grades than those students motivated by a desire for general work experience.

57 citations

Posted Content
TL;DR: In this paper, the authors analyse the development in the returns to education in West Germany for the period from 1984 to 1997, based on simple Mincer-type wage equations, and they estimate a return of about 8% for men and 10% for women, and these returns have remained remarkably stable over the period.
Abstract: This paper analyses the developments in the returns to education in West Germany for the period from 1984 to 1997. Based on simple Mincer-type wage equations, we estimate a return of about 8% for men and 10% for women, and these returns have remained remarkably stable over the period. On the basis of more differentiated specifications of wage equations, we find evidence for the presence of cohort effects, in addition to time and lifecycle effects. Furthermore, the analysis shows that the choice of the sample of observation plays a crucial role. Indeed, huge differences exist between part-timers and full-timers, as well as between private and public sectors. Full-time working women have similar returns to schooling than men, and if female returns are declining and have become lower than male returns in the private sector, they are rather increasing and are higher than male ones in the public sector. Moreover, not all education degrees yield the same annual return. If one accounts for the different lengths of studies, the master craftsman degree yields the highest return. However, the estimates proved rather robust towards the specification of the wage equation and the estimation method.

57 citations

Journal ArticleDOI
TL;DR: In this paper, the marginal rates of return to investment in schooling in 12 countries were estimated and significant systematic nonlinearity in the marginal rate of return was found. But, the authors did not consider the effect of education levels on the marginal return to education.

57 citations