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The Returns to Education in Italy: A New Look at the Evidence

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Author Info
Brunello, Giorgio () (University of Padua, FEEM and IZA, Bonn)
Comi, Simona (FEEM)
Lucifora, Claudio (Catholic University of Piacenza and FEEM)

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Abstract

The purpose of this paper is to provide an update of the empirical evidence on the private returns to education in Italy. First, we show that, whilst returns to education in Italy (based on gross wages) are in line with the European average, educational attainment is generally much lower (particularly at secondary and tertiary levels). How can we reconcile these findings? Based on a simple human capital model - where the optimal level of schooling is given by equating the marginal return to the marginal cost of education - we speculate that either marginal costs are steeper in Italy or that a larger share of the population involved in human capital investment faces high marginal costs in Italy compared to the European average. Second, we examine whether the estimated returns to education have varied significantly over time. The evidence is that returns have not changed much over the period 1977 to 1995, with the exception of 1993 and 1995, when they have increased significantly,especially among female employees. Quite interestingly, the observed increase in the returns to education has been almost completely driven by higher returns to education in the public sector. Assuming that skill biased technical change has been an important factor in shifting out the marginal returns to education, an important question for future research is why these shifts have only affected returns in the public sector of the economy. Third and last, we confirm the usual finding in the international literature that accounting for measurement error in years of schooling and/or for the endogeneity of educational choices by using instrumental variables significantly increases the returns to education with respect to estimates based on OLS methods. We also show that adding family background variables to the set of instruments significantly increases returns, which suggests that these variables affect mainly the subgroup of individuals with higher marginal returns to schooling.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 130.

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Length: 55 pages
Date of creation: Mar 2000
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Handle: RePEc:iza:izadps:dp130

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Related research
Keywords: Education; earnings;

Other versions of this item:

Find related papers by JEL classification:
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
I22 - Health, Education, and Welfare - - Education - - - Educational Finance
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. Ichino, Andrea & Winter-Ebmer, Rudolf, 1999. "Lower and upper bounds of returns to schooling: An exercise in IV estimation with different instruments," European Economic Review, Elsevier, vol. 43(4-6), pages 889-901, April. [Downloadable!] (restricted)
    Other versions:
  2. 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.
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    Other versions:
  4. Orley Ashenfelter & Cecilia Rouse, 1998. "Schooling, Intelligence, and Income in America: Cracks in the Bell Curve," Working Papers 786, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  6. repec:fth:prinin:407 is not listed on IDEAS
  7. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier. [Downloadable!] (restricted)
  8. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  12. Vella, Francis & Gregory, R. G., 1996. "Selection bias and human capital investment: Estimating the rates of return to education for young males," Labour Economics, Elsevier, vol. 3(2), pages 197-219, September. [Downloadable!] (restricted)
  13. Brunello, Giorgio & Colussi, Aldo, 1998. "The employer size-wage effect: evidence from Italy," Labour Economics, Elsevier, vol. 5(2), pages 217-230, June. [Downloadable!] (restricted)
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  14. David Card, 1994. "Earnings, Schooling, and Ability Revisited," NBER Working Papers 4832, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Checchi, Daniele & Ichino, Andrea & Rustichini, Aldo, 1999. "More equal but less mobile?: Education financing and intergenerational mobility in Italy and in the US," Journal of Public Economics, Elsevier, vol. 74(3), pages 351-393, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Strawinski, Pawel, 2007. "Changes In Return To Higher Education In Poland 1998-2004," MPRA Paper 5185, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Strawinski, Pawel, 2008. "External Return to Education in Poland," MPRA Paper 11598, University Library of Munich, Germany. [Downloadable!]
  3. Tilahun Temesgen, 2006. "Decomposing Gender Wage Differentials in Urban Ethiopia: Evidence from Linked Employer--Employee (LEE) Manufacturing Survey Data," Global Economic Review, Taylor and Francis Journals, vol. 35(1), pages 43-66, March. [Downloadable!] (restricted)
  4. Antonio Ciccone & Federico Cingano & Piero Cipollone, 2006. "The private and social return to schooling in Italy," Temi di discussione (Economic working papers) 569, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  5. Roberto Basile & Mauro Costantini & Sergio Destefanis, 2005. "Unit root and cointegration tests for cross-sectionally correlated panels. Estimating regional production functions," ISAE Working Papers 53, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
    Other versions:
  6. Heijke,Hans & Meng,Christoph & Ramaekers,Ger, 2003. "An investigation into the role of human capital competences and their pay-off," Research Memoranda 001, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
  7. Sergio Destefanis & Vania Sena, 2003. "Public Capital and Total Factor Productivity. New Evidence from the Italian Regions," CELPE Discussion Papers 73, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
  8. A. Dalmazzo & Guido De Blasio, 2003. "Social Returns to Education: Evidence from Italian Local Labor Market Areas," IMF Working Papers 03/165, International Monetary Fund. [Downloadable!]
  9. Concetta, MENDOLICCHIO, 2006. "A Disaggregate Analysis of Private Returns to Education in Italy," Discussion Papers (ECON - Département des Sciences Economiques) 2006054, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  10. Strawinski, Pawel, 2009. "External Return to Education in Europe," IRISS Working Paper Series 2009-09, IRISS at CEPS/INSTEAD. [Downloadable!]
  11. Sergio Lodde, 2007. "Human Capital And Productivity Growth In The Italian Regional Economies: A Sectoral Analysis," Working Paper CRENoS 200711, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
  12. Brunello, Giorgio, 2000. "Absolute Risk Aversion and the Returns to Education," IZA Discussion Papers 192, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  13. B. Müge Tunaer & Yaprak Gülcan, 2006. "Measuring Returns to Education in Turkey," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Proceedings of the Conference on Human and Economic Resources, pages 66-71 Izmir University of Economics. [Downloadable!]
  14. Donata Favaro & Stefano Magrini, 2005. "Group versus individual discrimination among young workers: a distributional approach," Labor and Demography 0506003, EconWPA. [Downloadable!]
    Other versions:
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