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Heterogeneous Returns to Education Over the Wage Distribution: Who Profits the Most?

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Author Info

  • Simone Balestra

    ()
    (Center for Education Policy Analysis, Stanford University and Department of Business Administration, University of Zurich)

  • Uschi Backes-Gellner

    (Department of Business Administration, University of Zurich)

Abstract

This study presents evidence of heterogeneous returns to education over the wage distribution. The authors use instrumental variable quantile regression and data from the Swiss Labor Force Survey to identify the causal link between education and earnings at different quantiles of the conditional distribution of wages. The results provide evidence that there is no unique causal effect of schooling and that for each individual the effect may be above or below those extensively documented by OLS or TSLS. In particular, while ordinary quantile regression estimates increasing returns in the quantile index, once the endogeneity of schooling is taken into account the authors instead observe higher returns at lower quantiles of the wage distribution. Interpreting the quantile index as a measure of unobserved ability, the findings suggest that less able individuals profit more form one additional year of education. The authors also investigate the presence of heterogeneity between and within educational paths, comparing the returns academic education with the returns vocational education over the wage distribution. The results indicate that academic education brings a significant return premium in the upper part of the wage distribution. However, such premium vanishes around the third decile and becomes negative at the bottom of the distribution.

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File URL: http://repec.business.uzh.ch/RePEc/iso/leadinghouse/0091_lhwpaper.pdf
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Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Economics of Education Working Paper Series with number 0091.

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Length: 47 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:iso:educat:0091

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Keywords: Returns to education; IVQR ; academic education; vocational education;

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References

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Cited by:
  1. Uschi Backes-Gellner, 2014. "Benefits of Apprenticeship Training and Recent Challenges Ð Empirical Results and Lessons from Switzerland and Germany," Economics of Education Working Paper Series 0097, University of Zurich, Institute for Strategy and Business Economics (ISU).

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