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Interpreting the coefficient of schooling in the human capital earnings function

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  • Chiswick, Barry R.

Abstract

The"human capital earnings function"(HCEF) has become a fundamental tool in research on earnings, wages, and incomes in industrial and developing economies. It is accepted procedure in litigation about earnings, such as cases involving the value of lost earnings due to injury, death, or discrimination. It is also often used to make educational policy decisions based on estimates of the rate of return from schooling. The HCEF relates the natural logarithm of earnings to investments in human capital measured in time, such as years of schooling and years of post-school work experience. Among its desirable features: 1) it is not an ad hoc specification; it is derived from an identity. So the coefficients of the equation have economic interpretations; 2) it uses data effieciently; 3) it is flexible, allowing for easy incorporations of variables appropriate for a particular study; and 4) the coefficients of the HCEF are devoid of units, facilitating comparisons across space (such as countries) or across time periods (such as decades). In estimating the rate of return from schooling, the coefficient of the schooling variable is often interpreted as the rate of return from schooling. This may be the correct interpretation but the author shows that in principle -and in many circumstances- it is not. He also discusses the effects on the coeffiecient of schooling of the treatment of the labor supply (weeks worked and hours worked per week) and other measures of labor market outcomes,

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1790.

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Date of creation: 30 Jun 1997
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Handle: RePEc:wbk:wbrwps:1790

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Related research

Keywords: Teaching and Learning; Fiscal&Monetary Policy; Labor Policies; Education Reform and Management; Environmental Economics&Policies; Teaching and Learning; Environmental Economics&Policies; Education Reform and Management; Poverty Assessment; Inequality;

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  1. 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.
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Cited by:
  1. Mohammad Niaz Asadullah (SKOPE, Department of Economics), . "Returns to Education in Bangladesh," QEH Working Papers qehwps130, Queen Elizabeth House, University of Oxford.
  2. Lachler, Ulrich, 1998. "Education and earnings inequality in Mexico," Policy Research Working Paper Series 1949, The World Bank.
  3. Giovagnoli, Paula Ines & Fiszbein, Ariel & Patrinos, Harry Anthony, 2005. "Estimating the returns to education in Argentina : 1992-2002," Policy Research Working Paper Series 3715, The World Bank.
  4. Aline Coudouel & Stefano Paternostro, 2005. "Analyzing the Distributional Impact of Reforms : A Practioner's Guide to Trade, Monetary and Exchange Rate Policy, Utility Provision, Agricultural Markets, Land Policy and Education, Volume 1," World Bank Publications, The World Bank, number 7251, October.
  5. Nielsen, Chantal Pohl, 2007. "Immigrant overeducation : evidence from Denmark," Policy Research Working Paper Series 4234, The World Bank.
  6. Gustavo Yamada, 2006. "Retornos a la educación superior en el mercado laboral: ¿Vale la pena el esfuerzo?," Working Papers 06-13, Departamento de Economía, Universidad del Pacífico, revised Dec 2006.
  7. Anchor, John R. & Fiserová, Jana & Mars[iota]ková, Katerina & Urbánek, Václav, 2011. "Student expectations of the financial returns to higher education in the Czech Republic and England: Evidence from business schools," Economics of Education Review, Elsevier, vol. 30(4), pages 673-681, August.
  8. Claudio Sapelli., 2009. "Los Retornos a la Educación en Chile: Estimaciones por Corte Transversal y por Cohortes," Documentos de Trabajo 349, Instituto de Economia. Pontificia Universidad Católica de Chile..
  9. Ludger Wößmann, 2000. "Specifying Human Capital: A Review, Some Extensions, and Development Effects," Kiel Working Papers 1007, Kiel Institute for the World Economy.
  10. Marie W. Arneberg & John K. Dagsvik & Zhiyang Jia, 2002. "Labor Market Modeling Recognizing Latent Job Attributes and Opportunity Constraints An Empirical Analysis of Labor Market Behavior of Eritrean Women," Discussion Papers 331, Research Department of Statistics Norway.

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