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

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  • Lucifora, Claudio

    ()
    (Università Cattolica del Sacro Cuore)

  • Comi, Simona

    ()
    (University of Milan Bicocca)

  • Brunello, Giorgio

    ()
    (University of Padova)

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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Bibliographic Info

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

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Length: 56 pages
Date of creation: Mar 2000
Date of revision:
Publication status: published in: Harmon, C./I. Walker/N. Westergard-Nielsen (eds.), The Returns to Education in Europe, Edward Elgar, 2001
Handle: RePEc:iza:izadps:dp130

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Keywords: earnings; Education;

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References

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  1. Brunello, Giorgio & Colussi, Aldo, 1998. "The employer size-wage effect: evidence from Italy," Labour Economics, Elsevier, Elsevier, vol. 5(2), pages 217-230, June.
  2. James Heckman, 2011. "Policies to foster human capital," Educational Studies, Higher School of Economics, Higher School of Economics, issue 3, pages 73-137.
  3. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain The Rising Return To College For Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 705-746, May.
  4. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  5. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 710, Princeton University, Department of Economics, Industrial Relations Section..
  6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  7. repec:fth:prinin:407 is not listed on IDEAS
  8. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  9. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 2.
  10. Orley Ashenfelter & Cecilia Rouse, 1998. "Schooling, Intelligence, and Income in America: Cracks in the Bell Curve," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 786, Princeton University, Department of Economics, Industrial Relations Section..
  11. Dustmann, Christian & van Soest, Arthur, 1998. "Public and private sector wages of male workers in Germany," European Economic Review, Elsevier, Elsevier, vol. 42(8), pages 1417-1441, September.
  12. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers, Institute for Fiscal Studies W95/12, Institute for Fiscal Studies.
  13. 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, Elsevier, vol. 43(4-6), pages 889-901, April.
  14. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n540195, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  15. 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, Elsevier, vol. 3(2), pages 197-219, September.
  16. 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, Elsevier, vol. 74(3), pages 351-393, December.
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