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The causal effect of education on earnings

In: Handbook of Labor Economics

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Author Info
Card, David

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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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This chapter was published in: O. Ashenfelter & D. Card (ed.) Handbook of Labor Economics, , chapter 30, pages 1801-1863, 1999.

This item is provided by Elsevier in its series Handbook of Labor Economics with number 3-30.

Handle: RePEc:eee:labchp:3-30

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This chapter was published in the following book, which is listed on IDEAS:
O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3, June. [Downloadable!] (restricted)
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J0 - Labor and Demographic Economics - - General

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