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Returns to Education in Australia

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  • Andrew Leigh

Abstract

Using data from the 2001-2005 waves of the Household, Income and Labour Dynamics in Australia survey, and taking account of existing estimates of ability bias and social returns to schooling, I estimate the economic return to various levels of education. Raising high school attainment appears to yield the highest annual benefits, with per-year gains as high as 30 percent (depending on the adjustment for ability bias). Some forms of vocational training also appear to boost earnings, with significant gains from Certificate Level III/IV qualifications (for high school dropouts only), and from Diploma and Advanced Diploma qualifications. At the university level, Bachelor degrees and postgraduate qualifications are associated with significantly higher earnings, with each year of a Bachelor degree raising annual earnings by about 15 percent. For high school, slightly less than half the gains are due to increased productivity, with the rest due to higher levels of participation. For vocational training, about one-third of the gains are from productivity, and two-thirds from greater participation. For university, most of the gains are from productivity. I find some evidence that the productivity benefits of education are higher towards the top of the distribution, but the participation effects are higher towards the bottom of the conditional earnings distribution.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 561.

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Date of creation: Oct 2007
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Handle: RePEc:auu:dpaper:561

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Keywords: Returns to education; ability bias; high school; vocational training; university;

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  1. Orley Ashenfelter & Cecilia Rouse, 1997. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," NBER Working Papers 6106, National Bureau of Economic Research, Inc.
  2. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
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  4. Miller, Paul & Mulvey, Charles & Martin, Nick, 2006. "The return to schooling: Estimates from a sample of young Australian twins," Labour Economics, Elsevier, vol. 13(5), pages 571-587, October.
  5. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers ECO2001/09, European University Institute.
  6. John Quiggin, 1999. "Human Capital Theory and Education Policy in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(2), pages 130-144.
  7. Rummery, Sarah & Vella, Francis & Verbeek, Marno, 1999. "Estimating the returns to education for Australian youth via rank-order instrumental variables," Labour Economics, Elsevier, vol. 6(4), pages 491-507, November.
  8. Doroth´┐Ż Bonjour & Lyn Cherkas & Jonathan Haskel & Denise Hawkes & Tim Spector, 2002. "Returns to Education: Evidence from UK Twins," Working Papers 453, Queen Mary, University of London, School of Economics and Finance.
  9. 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.
  10. Lance Lochner & Enrico Moretti, 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," American Economic Review, American Economic Association, vol. 94(1), pages 155-189, March.
  11. Isacsson, Gunnar, 1999. "Estimates of the return to schooling in Sweden from a large sample of twins," Labour Economics, Elsevier, vol. 6(4), pages 471-489, November.
  12. Andrew Leigh & Chris Ryan, 2005. "Estimating Returns to Education: Three Natural Experiment Techniques Compared," CEPR Discussion Papers 493, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  13. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
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  15. Behrman, Jere R & Rosenzweig, Mark R & Taubman, Paul, 1994. "Endowments and the Allocation of Schooling in the Family and in the Marriage Market: The Twins Experiment," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1131-74, December.
  16. Miller, Paul W & Mulvey, Charles & Martin, Nick, 1995. "What Do Twins Studies Reveal about the Economic Returns to Education? A Comparison of Australian and U.S. Findings," American Economic Review, American Economic Association, vol. 85(3), pages 586-99, June.
  17. Philip Oreopoulos, 2003. "Do Dropouts Drop Out Too Soon? International Evidence From Changes in School-Leaving Laws," NBER Working Papers 10155, National Bureau of Economic Research, Inc.
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Cited by:
  1. Xiaodong Gong & Robert Breuing, 2011. "Estimating Net Child Care Price Elasticities of Partnered Women With Pre-School Children Using a Discrete Structural Labour Supply-Child Care Model," CEPR Discussion Papers 653, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. Gong, Xiaodong & Breunig, Robert, 2012. "Child Care Assistance: Are Subsidies or Tax Credits Better?," IZA Discussion Papers 6606, Institute for the Study of Labor (IZA).
  3. Seewanyana, Sarah & Kasirye, Ibrahim, 2010. "Gender differences in Uganda: the case for access to education and health services," Research Series 113612, Economic Policy Research Centre (EPRC).
  4. Xiaodong Gong & Robert Breunig, 2012. "Estimating net chid care price elasticities of partnered women with pre-school children using a discrete structural labour supply-child care model," Treasury Working Papers 2012-01, Treasury, Australian Government, revised Nov 2012.

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