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Nonlinearity in the return to education

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Abstract

This study estimates marginal rates of return to investment in schooling in 12 countries. Significant systematic nonlinearity in the marginal rate of return is found. In particular, the marginal rate of return is increasing significantly at low levels of education, and decreasing significantly at high levels of education. This may help explain why estimates of the return to schooling are often considerably higher when instrumenting for education.

Suggested Citation

  • Philip A. Trostel, 2005. "Nonlinearity in the return to education," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 191-202, May.
  • Handle: RePEc:cem:jaecon:v:8:y:2005:n:1:p:191-202
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    References listed on IDEAS

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    Cited by:

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    2. Behr, Andreas & Pötter, Ulrich, 2006. "Analysing wage differences between the USA and Germany using proportional hazards models," Beiträge zur angewandten Wirtschaftsforschung 16, University of Münster, Center of Applied Economic Research Münster (CAWM).
    3. Andini, Corrado, 2014. "Persistence Bias and Schooling Returns," IZA Discussion Papers 8143, Institute of Labor Economics (IZA).
    4. Stephan Kampelmann, 2011. "The Socio-Economics of Pay Rules," ULB Institutional Repository 2013/268040, ULB -- Universite Libre de Bruxelles.
    5. Park, Seonyoung, 2011. "Returning to school for higher returns," Economics of Education Review, Elsevier, vol. 30(6), pages 1215-1228.
    6. Corrado Andini, 2010. "A dynamic Mincer equation with an application to Portuguese data," Applied Economics, Taylor & Francis Journals, vol. 42(16), pages 2091-2098.
    7. Deshpande, Ashwini & Ramachandran, Rajesh, 2019. "Traditional hierarchies and affirmative action in a globalizing economy: Evidence from India," World Development, Elsevier, vol. 118(C), pages 63-78.
    8. Michel Dumont, 2008. "Working Paper 22-08 - Wages and employment by level of education and occupation in Belgium," Working Papers 0822, Federal Planning Bureau, Belgium.
    9. Kevin O’Rourke & Ahmed Rahman & Alan Taylor, 2013. "Luddites, the industrial revolution, and the demographic transition," Journal of Economic Growth, Springer, vol. 18(4), pages 373-409, December.
    10. Zhimin Liu & Aftab Ahmed Memon & Woubshet Negussie & Haile Ketema, 2020. "Interpreting the Sustainable Development of Human Capital and the Sheepskin Effects in Returns to Higher Education: Empirical Evidence from Pakistan," Sustainability, MDPI, Open Access Journal, vol. 12(6), pages 1-16, March.
    11. Corrado Andini, 2013. "How well does a dynamic Mincer equation fit NLSY data? Evidence based on a simple wage-bargaining model," Empirical Economics, Springer, vol. 44(3), pages 1519-1543, June.
    12. Du, Zaichao & LI, Renyu & He, Qinying & ZHANG, Lin, 2014. "Decomposing the rich dad effect on income inequality using instrumental variable quantile regression," China Economic Review, Elsevier, vol. 31(C), pages 379-391.
    13. Andini, Corrado, 2009. "How Fast Do Wages Adjust to Human-Capital Productivity? Dynamic Panel-Data Evidence from Belgium, Denmark and Finland," IZA Discussion Papers 4583, Institute of Labor Economics (IZA).
    14. Sophie van Huellen & Duo Qin, 2019. "Compulsory Schooling and Returns to Education: A Re-Examination," Econometrics, MDPI, Open Access Journal, vol. 7(3), pages 1-20, September.
    15. Sikdar, Satadru, 2019. "Rate of Return to Education in India: Some Insights," Working Papers 19/270, National Institute of Public Finance and Policy.
    16. Aftab Ahmed Memon & Zhimin Liu, 2019. "Assessment of Sustainable Development of the Performance of Higher Education Credentials in the Transitive Labor Market," Sustainability, MDPI, Open Access Journal, vol. 11(9), pages 1-14, May.
    17. Liu, C., 2018. "Reconciling Returns to Education in Off-Farm Wage Employment among Women in Rural China," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276941, International Association of Agricultural Economists.
    18. Djavad Salehi-Isfahani, 2009. "Education and Earnings in The Middle East: A Comparative Study of Returns To Schooling in Egypt, Iran, and Turkey," Working Papers 504, Economic Research Forum, revised Sep 2009.
    19. Djavad Salehi-Isfahani & Insan Tunali & Ragui Assaad, 2009. "A Comparative Study Of Returns To Education Of Urban Men In Egypt, Iran, And Turkey," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 145-187.
    20. Tuomo Suhonen & Jaakko Pehkonen & Hannu Tervo, 2011. "Spatial variation in the development of the return to university education in Finland, 1970-2004," ERSA conference papers ersa10p1351, European Regional Science Association.
    21. Andreas Behr & Ulrich Pötter, 2009. "Analysing Wage Differences between the USA and Germany Using Proportional Hazards Models," LABOUR, CEIS, vol. 23(2), pages 319-347, June.

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    More about this item

    Keywords

    return to education; nonlinearity; instrumental variables;
    All these keywords.

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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