Over the 1980s there were sharp increases in the return to schooling estimated with conventional wage regressions. We use both a signaling model and a human capital model to explore how the relationship between ability and schooling could have changed over this period in ways Chat would have increased the schooling coefficient in these regressions. Our empirical results reject the hypothesis that an increase in the upward bias of the schooling coefficient, due to a change in the relationship between ability and schooling, underlies the observed increase in the return to education over the 1980s. We also find that the increase in the return to education has occurred largely for workers with relatively high levels of academic ability.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
3693.
Length: Date of creation: May 1991 Date of revision: Publication status: published as Journal of Labor Economics, p. 521-544 Handle: RePEc:nbr:nberwo:3693
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Milton Harris & Bengt Holmstrom, 1981.
"A Theory of Wage Dynamics,"
Discussion Papers
488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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