This paper examines the channels through which education affects household earnings in environments where wages are unobserved. Utilizing data from rural Peru, the empirical strategy decomposes the earnings returns to education into various wage-dependent and labour supply parameters. Geographic variation of market development inherent in the Peruvian Andes assists in the identification of unobserved wages. Results indicate that education affects earnings disproportionately more than hours, implying strong wage effects of education. This paper provides evidence that education gives rural households access to better, more lucrative, jobs characterized by fewer hours. This effect is more pronounced in more developed market environments.
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Length: 44 pages Date of creation: 17 Dec 2003 Date of revision: Handle: RePEc:wpa:wuwpdc:0312005
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