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Returns to Education: The Causal Effects of Education on Earnings, Health and Smoking

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  • Gregory Veramendi
  • John Eric Humphries
  • James J. Heckman

Abstract

This paper estimates returns to education using a dynamic model of educational choice that synthesizes approaches in the structural dynamic discrete choice literature with approaches used in the reduced form treatment effect literature. It is an empirically robust middle ground between the two approaches which estimates economically interpretable and policy-relevant dynamic treatment effects that account for heterogeneity in cognitive and non-cognitive skills and the continuation values of educational choices. Graduating college is not a wise choice for all. Ability bias is a major component of observed educational differentials. For some, there are substantial causal effects of education at all stages of schooling.

Suggested Citation

  • Gregory Veramendi & John Eric Humphries & James J. Heckman, 2016. "Returns to Education: The Causal Effects of Education on Earnings, Health and Smoking," Working Papers id:10908, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:10908
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    References listed on IDEAS

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    3. Pedro Carneiro & James J. Heckman & Edward Vytlacil, 2010. "Evaluating Marginal Policy Changes and the Average Effect of Treatment for Individuals at the Margin," Econometrica, Econometric Society, vol. 78(1), pages 377-394, January.
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    5. Heckman, James J. & Urzúa, Sergio, 2010. "Comparing IV with structural models: What simple IV can and cannot identify," Journal of Econometrics, Elsevier, vol. 156(1), pages 27-37, May.
    6. Philipp Eisenhauer & James J. Heckman & Stefano Mosso, 2015. "Estimation Of Dynamic Discrete Choice Models By Maximum Likelihood And The Simulated Method Of Moments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 331-357, May.
    7. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
    8. Philipp Eisenhauer & James J. Heckman & Edward Vytlacil, 2015. "The Generalized Roy Model and the Cost-Benefit Analysis of Social Programs," Journal of Political Economy, University of Chicago Press, vol. 123(2), pages 413-443.
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    16. Kevin M. Stange, 2012. "An Empirical Investigation of the Option Value of College Enrollment," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 49-84, January.
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    Cited by:

    1. Rauh, Christopher, 2017. "Voting, education, and the Great Gatsby Curve," Journal of Public Economics, Elsevier, vol. 146(C), pages 1-14.
    2. Teodora Boneva & Christopher Rauh, 2017. "Socio-Economic Gaps in University Enrollment: The Role of Perceived Pecuniary and Non-Pecuniary Returns," CESifo Working Paper Series 6756, CESifo Group Munich.
    3. James J. Heckman & John Eric Humphries & Gregory Veramendi, 2016. "Returns to Education: The Causal Effects of Education on Earnings, Health and Smoking," Working Papers 2016-014, Human Capital and Economic Opportunity Working Group.
    4. repec:nbr:nberch:13937 is not listed on IDEAS
    5. Juanna Joensen & Gregory Veramendi & John Eric Humphries, 2017. "College Major Choice: Sorting and Differential Returns to Skills," 2017 Meeting Papers 1623, Society for Economic Dynamics.
    6. OKUBO Toshihiro & Alexander F. WAGNER & YAMADA Kazuo, 2017. "Does Foreign Ownership Explain Company Export and Innovation Decisions? Evidence from Japan," Discussion papers 17099, Research Institute of Economy, Trade and Industry (RIETI).
    7. Jorge Rodriguez, 2017. "Understanding the Effects of Income and Child Care Subsidies on Children's Academic Achievement," 2017 Papers pro1077, Job Market Papers.
    8. Sudharsanan, Nikkil & Behrman, Jere R. & Kohler, Hans-Peter, 2016. "Limited common origins of multiple adult health-related behaviors: Evidence from U.S. twins," Social Science & Medicine, Elsevier, vol. 171(C), pages 67-83.
    9. Chris Belfield & Teodora Boneva & Christopher Rauh & Jonathan Shaw, 2016. "Money or fun? Why students want to pursue further education," IFS Working Papers W16/13, Institute for Fiscal Studies.
    10. Biewen, Martin & Tapalaga, Madalina, 2017. "Early Tracking, Academic vs. Vocational Training and the Value of 'Second Chance' Options," IZA Discussion Papers 11080, Institute for the Study of Labor (IZA).
    11. Heckman, James J. & Corbin, Chase O., 2016. "Capabilities and Skills," IZA Discussion Papers 10005, Institute for the Study of Labor (IZA).
    12. Strulik, Holger, 2016. "The return to education in terms of wealth and health," Center for European, Governance and Economic Development Research Discussion Papers 293, University of Goettingen, Department of Economics.
    13. Parise, Gianpaolo & Peijnenburg, Kim, 2017. "Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities," CEPR Discussion Papers 11900, C.E.P.R. Discussion Papers.
    14. Titus J. Galama & Adriana Lleras-Muney & Hans van Kippersluis, 2018. "The Effect of Education on Health and Mortality: A Review of Experimental and Quasi-Experimental Evidence," NBER Working Papers 24225, National Bureau of Economic Research, Inc.
    15. Pikos, Anna Katharina, 2017. "Education and work-related mental health - higher educated employees are worse off," Hannover Economic Papers (HEP) dp-611, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    16. Gianpaolo Parise & Kim Peijnenburg, 2017. "Understanding the determinants of financial outcomes and choices: the role of noncognitive abilities," BIS Working Papers 640, Bank for International Settlements.
    17. Victor Lavy & Giulia Lotti & Zizhong Yan, 2016. "Empowering Mothers and Enhancing Early Childhood Investment: Effect on Adults Outcomes and Children Cognitive and Non-Cognitive Skills," NBER Working Papers 22963, National Bureau of Economic Research, Inc.
    18. Charles R. Hulten, 2017. "The Importance of Education and Skill Development for Economic Growth in the Information Era," NBER Working Papers 24141, National Bureau of Economic Research, Inc.
    19. Daniel Kemptner & Songül Tolan, 2016. "The Role of Time Preferences in Educational Decision Making," Discussion Papers of DIW Berlin 1628, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    education; returns to education; educational choice; structural choice; treatment effect; economy; heterogenity; cognitive skills; non-cognitive skills; educational choices; graduation; college; health; smoking; skills; stages of schooling; educational differentials; ability bias;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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