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Can education compensate for low ability? Evidence from British data

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  • Kevin Denny

    (Institute for Fiscal Studies and University College Dublin)

  • Vincent O'Sullivan

Abstract

This paper uses cross section data to investigate whether the returns to education vary with the level of ability. Using a measure of cognitive ability based on tests taken at ages 7 and 11 we find, unlike most of the existing literature, clear evidence that the return to schooling is lower for those with higher ability indicating that education can act as a substitute for observed ability. We also estimate quantile regression functions to examine how the return to schooling varies across the conditional distribution of earnings. The results show that the return is lower for higher quantiles, suggesting that education is also a substitute for unobserved ability.

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File URL: http://www.ifs.org.uk/wps/wp0419.pdf
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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W04/19.

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Length: 9 pp
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:ifs:ifsewp:04/19

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Keywords: Earnings; education; ability;

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References

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  1. Tobias, Justin, 2001. "Are Returns to Schooling Concentrated Among the Most Able? A Semiparametric Analysis of the Ability-Earnings Relationships," Staff General Research Papers 12016, Iowa State University, Department of Economics.
  2. James Heckman & Pedro Carneiro, 2003. "Human Capital Policy," NBER Working Papers 9495, National Bureau of Economic Research, Inc.
  3. McKinley L. Blackburn & David Neumark, 1991. "Omitted-Ability Bias and the Increase in the Return to Schooling," NBER Working Papers 3693, National Bureau of Economic Research, Inc.
  4. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
  5. Dearden, Lorraine, 1999. "The effects of families and ability on men's education and earnings in Britain1," Labour Economics, Elsevier, vol. 6(4), pages 551-567, November.
  6. Melissa Osborne & Herbert Gintis & Samuel Bowles, 2001. "The Determinants of Earnings: A Behavioral Approach," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1137-1176, December.
  7. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages S74-S103, Part II, .
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Cited by:
  1. Harry Anthony Patrinos & Chris Sakellariou, 2006. "Economic volatility and returns to education in Venezuela: 1992-2002," Applied Economics, Taylor & Francis Journals, vol. 38(17), pages 1991-2005.
  2. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  3. Sarah Voitchovsky & Bertrand Maitre & Brian Nolan, 2012. "Wage Inequality in Ireland’s “Celtic Tiger” Boom," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 99–133.
  4. Eric Bartelsman & Sabien Dobbelaere & Bettina Peters, 2013. "Allocation of Human Capital and Innovation at the Frontier: Firm-level Evidence on Germany and the Netherlands," Tinbergen Institute Discussion Papers 13-095/VII, Tinbergen Institute.
  5. Giovagnoli, Paula Ines & Fiszbein, Ariel & Patrinos, Harry Anthony, 2005. "Estimating the returns to education in Argentina : 1992-2002," Policy Research Working Paper Series 3715, The World Bank.
  6. Brunello, Giorgio & Fort, Margherita & Weber, Guglielmo, 2007. "“For One More Year with You”: Changes in Compulsory Schooling, Education and the Distribution of Wages in Europe," IZA Discussion Papers 3102, Institute for the Study of Labor (IZA).

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