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Endogenous wage determinants and returns to education in Spain

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  • Antonio Caparrós Ruiz
  • Lucía Navarro Gómez
  • Mario Rueda Narváez
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    Abstract

    Purpose – One of the major contributions of the literature on human capital has been to demonstrate the role of schooling as a determinant of wages. However, the exact size of the effect on wages and how it should be estimated remain a source of both theoretical and empirical debate. This paper seeks to provide empirical evidence on the returns to education for the Spanish labor market. Design/methodology/approach – The paper uses the instrumental variable approach proposed by Hausman and Taylor to assess the direction and size of the bias that affects standard OLS estimation, when some of the wage determinants are endogenous. Findings – The results suggest that the returns to schooling are substantially higher once endogeneity is taken into account, rising from around 6 percent for each additional year of schooling to about 12 percent when the effect is estimated via instrumental variables. This is in line with research for other countries. Evidence is also found of endogeneity in the effect of job seniority, although in the opposite direction. That is, the Hausman and Taylor model finds little effect of seniority on wages, whereas OLS estimates suggest a larger effect. Research limitations/implications – Further research is needed to reconcile these results (downwards bias in the OLS estimate of the returns to schooling) with the theoretical notion of an upwards bias caused by the correlation between unobservable ability, wages and schooling. Originality/value – The paper adds new evidence on wage determinants for the Spanish labor market and does so for men and women using alternative estimation procedures.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

    Volume (Year): 31 (2010)
    Issue (Month): 4 ( July)
    Pages: 410-425

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    Handle: RePEc:eme:ijmpps:v:31:y:2010:i:4:p:410-425

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    Related research

    Keywords: Determinants; Education; Human capital; Pay; Spain;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Psacharopoulos, George, 1993. "Returns to investment in education : a global update," Policy Research Working Paper Series 1067, The World Bank.
    2. Pereira, Pedro T. & Martins, Pedro S., 2001. "Returns to Education and Wage Equations," IZA Discussion Papers 298, Institute for the Study of Labor (IZA).
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    4. Ashenfelter, Orley & Harmon, Colm & Oosterbeek, Hessel, 1999. "A review of estimates of the schooling/earnings relationship, with tests for publication bias," Labour Economics, Elsevier, vol. 6(4), pages 453-470, November.
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    19. Lassibille, Gerard, 1998. "Wage Gaps Between the Public and Private Sectors in Spain," Economics of Education Review, Elsevier, vol. 17(1), pages 83-92, February.
    20. Sara de la Rica & Arantza Ugidos, 1995. "¿Son las diferencias en capital humano determinantes en las diferencias salariales observadas entre hombres y mujeres?," Investigaciones Economicas, Fundación SEPI, vol. 19(3), pages 395-414, September.
    21. Maria San-Segundo & Asuncion Valiente, 2003. "Family Background and Returns to Schooling in Spain," Education Economics, Taylor & Francis Journals, vol. 11(1), pages 39-52.
    22. George Psacharopoulos, 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 583-604.
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    24. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
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