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K-Returns to Education

Author

Listed:
  • Andreas Fagereng

    (BI Norwegian Business School)

  • Luigi Guiso

    (CEPR and EIEF)

  • Martin B. Holm

    (University of Oslo)

  • Luigi Pistaferri

    (Stanford University)

Abstract

We exploit a school reform that increased the length of compulsory schooling in Norway in the 1960s to study the causal effect of formal general education on returns on wealth (k-returns). OLS estimates reveal a strong, positive and statistically significant correlation between education and returns on individual net worth. This effect disappears in IV regressions, implying that general education has no causal effect on individual performance in capital markets, whose heterogeneity largely reflects non-acquired ability. On the contrary, we find that education causes higher returns in the labor market (l-returns). We speculate about possible rationales for this important asymmetry.

Suggested Citation

  • Andreas Fagereng & Luigi Guiso & Martin B. Holm & Luigi Pistaferri, 2020. "K-Returns to Education," EIEF Working Papers Series 2002, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2020.
    • Handle: RePEc:eie:wpaper:2002
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    JEL classification:

    • G0 - Financial Economics - - General
    • I0 - Health, Education, and Welfare - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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