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Ability, families, education and earnings in Britain

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Author Info

  • Lorraine Dearden

    ()
    (Institute for Fiscal Studies and Bedford Group, Institute of Education, University of London)

Abstract

The paper estimates the returns to education for a cohort of individuals born in Britain in March 1958 who have been followed since birth until the age of 33. The data used has a wealth of information on family background including parental education, social class and interest shown in the child's education as well as measures of ability. These variables are typically missing in studies looking at the returns to schooling. In the paper we Ůd that the return to an additional year of full-time education for the UK population as a whole is somewhere between 5 to 7 per cent for men and 8 to 10 per cent for women even after correcting for the eĥcts of measurement error. The paper also presents evidence that the returns to an additional year of schooling in the UK are heterogeneous. The results from the paper suggest that individuals undertaking education involving some sort of formal qualification have significantly larger rates of return to an additional year of education than individuals who have obtained no formal education. Individuals whose highest educational qualification is an A level (the highest schooling qualification in the UK) appear to have the highest average return to an additional year of education at around 15 per cent for both men and women. There is also some evidence that individuals with lower tastes for education, have significantly higher marginal returns to education. The results of the paper suggest that recent IV estimates of the returns to schooling in the UK, which exceed typical OLS estimates, may overestimate the average marginal return for the population as a whole.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W98/14.

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Length: 43 pp.
Date of creation: Jul 1998
Date of revision:
Handle: RePEc:ifs:ifsewp:98/14

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References

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  1. Joshua D. Angrist & Alan B. Krueger, 1992. "Estimating the Payoff to Schooling Using the Vietnam-Era Draft Lottery," NBER Working Papers 4067, National Bureau of Economic Research, Inc.
  2. Butcher, Kristin F & Case, Anne, 1994. "The Effect of Sibling Sex Composition on Women's Education and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 531-63, August.
  3. John Bound & David A. Jaeger & Regina Baker, 1993. "The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables," NBER Technical Working Papers 0137, National Bureau of Economic Research, Inc.
  4. Lorraine Dearden & Javier Ferri & Costas Meghir, 1998. "The effect of school quality on educational attainment and wages," IFS Working Papers W98/03, Institute for Fiscal Studies.
  5. Orley Ashenfelter & David J. Zimmerman, 1997. "Estimates Of The Returns To Schooling From Sibling Data: Fathers, Sons, And Brothers," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 1-9, February.
  6. repec:fth:prinin:317 is not listed on IDEAS
  7. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
  8. repec:fth:prinin:318 is not listed on IDEAS
  9. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," Working Papers 696, Princeton University, Department of Economics, Industrial Relations Section..
  10. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  11. Griliches, Zvi, 1977. "Estimating the Returns to Schooling: Some Econometric Problems," Econometrica, Econometric Society, vol. 45(1), pages 1-22, January.
  12. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-44, July.
  13. M Arellano & Costas Megir & Mary Silles, 1990. "Female Labour Supply and On-the-Job Search: An Empirical Model Estimated using Complementary Data Sets," CEP Discussion Papers dp0009, Centre for Economic Performance, LSE.
  14. David Card, 1994. "Earnings, Schooling, and Ability Revisited," NBER Working Papers 4832, National Bureau of Economic Research, Inc.
  15. 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, .
  16. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
  17. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  18. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  19. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics, Finance and Accounting Department Working Paper Series n540195, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  20. James J. Heckman, 1995. "Instrumental Variables: A Cautionary Tale," NBER Technical Working Papers 0185, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Augustin De Coulon & Oscar Marcenaro-Gutierrez & Anna Vignoles, 2007. "The value of basic skills in the British labour market," LSE Research Online Documents on Economics 19398, London School of Economics and Political Science, LSE Library.
  2. Arnaud Chevalier & Gauthier Lanot, 2002. "The Relative Effect of Family Characteristics and Financial Situation on Educational Achievement," Education Economics, Taylor & Francis Journals, vol. 10(2), pages 165-181.
  3. Emilia Del Bono, 2004. "Pre-Marital Fertility and Labour Market Opportunities: Evidence from the 1970 British Cohort Study," Economics Series Working Papers 202, University of Oxford, Department of Economics.
  4. Emilia Del Bono & Fernando Galindo-Rueda, 2007. "The Long Term Impacts of Compulsory Schooling: Evidence from a Natural Experiment in School Leaving Dates," CEE Discussion Papers 0074, Centre for the Economics of Education, LSE.
  5. repec:ese:iserwp:2002-25 is not listed on IDEAS
  6. Arnaud Chevalier & Tarja K. Viitanen, 2002. "The long-run labour market consequences of teenage motherhood in Britain," LSE Research Online Documents on Economics 20093, London School of Economics and Political Science, LSE Library.
  7. Sanjaya DeSilva & Mohammed Mehrab Bin Bakhtiar, 2011. "Women, Schooling, and Marriage in Rural Philippines," Economics Working Paper Archive wp_701, Levy Economics Institute.
  8. repec:ese:iserwp:2001-12 is not listed on IDEAS
  9. Arnaud Chevalier & Gauthier Lanot, 2001. "The relative effect of family and financial characteristics on educational echievement," CEE Discussion Papers 0008, Centre for the Economics of Education, LSE.
  10. Wen Fan, 2011. "Estimating the Return to College in Britain Using Regression and Propensity Score Matching," Working Papers 201119, School Of Economics, University College Dublin.
  11. L Feinstein, 2000. "The Relative Economic Importance of Academic, Psychological and Behavioural Attributes Developed on Chilhood," CEP Discussion Papers dp0443, Centre for Economic Performance, LSE.
  12. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2004. "Evaluating the impact of education on earnings in the UK: models, methods and results from the NCDS," LSE Research Online Documents on Economics 19451, London School of Economics and Political Science, LSE Library.
  13. Lorraine Dearden, 1999. "Qualifications and earnings in Britain: how reliable are conventional OLS estimates of the returns to education?," IFS Working Papers W99/07, Institute for Fiscal Studies.

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