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Can education compensate for low ability? Evidence from British data

Author

Listed:
  • Kevin Denny

    () (Institute for Fiscal Studies and University College Dublin)

  • Vincent O'Sullivan

    (Institute for Fiscal Studies)

Abstract

This paper uses cross section data to investigate whether the returns to education vary with the level of ability. Using a measure of cognitive ability based on tests taken at ages 7 and 11 we find, unlike most of the existing literature, clear evidence that the return to schooling is lower for those with higher ability indicating that education can act as a substitute for observed ability. We also estimate quantile regression functions to examine how the return to schooling varies across the conditional distribution of earnings. The results show that the return is lower for higher quantiles, suggesting that education is also a substitute for unobserved ability.

Suggested Citation

  • Kevin Denny & Vincent O'Sullivan, 2004. "Can education compensate for low ability? Evidence from British data," IFS Working Papers W04/19, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:04/19
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    References listed on IDEAS

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    1. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 74-103, Part II, .
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    3. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
    4. Melissa Osborne & Herbert Gintis & Samuel Bowles, 2001. "The Determinants of Earnings: A Behavioral Approach," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1137-1176, December.
    5. Omar Arias & Walter Sosa-Escudero & Kevin F. Hallock, 2001. "Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data," Empirical Economics, Springer, vol. 26(1), pages 7-40.
    6. Dearden, Lorraine, 1999. "The effects of families and ability on men's education and earnings in Britain1," Labour Economics, Elsevier, vol. 6(4), pages 551-567, November.
    7. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 253-284.
    8. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
    9. Tobias, J.L., 2000. "Are Return to Schooling Concentrated Among the Most Able? A Semiparametric Analysis of the Ability-Earnings Relationship," Papers 00-01-12, California Irvine - School of Social Sciences.
    10. Telhado Pereira, Pedro & Silva Martins, Pedro, 2002. "Is there a return-risk link in education?," Economics Letters, Elsevier, vol. 75(1), pages 31-37, March.
    11. James Heckman & Edward Vytlacil, 2001. "Identifying The Role Of Cognitive Ability In Explaining The Level Of And Change In The Return To Schooling," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 1-12, February.
    12. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-544, July.
    13. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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    Cited by:

    1. Bartelsman, Eric & Dobbelaere, Sabien & Peters, Bettina, 2013. "Allocation of Human Capital and Innovation at the Frontier: Firm-Level Evidence on Germany and the Netherlands," IZA Discussion Papers 7540, Institute for the Study of Labor (IZA).
    2. Brunello, Giorgio & Fort, Margherita & Weber, Guglielmo, 2007. "“For One More Year with You”: Changes in Compulsory Schooling, Education and the Distribution of Wages in Europe," IZA Discussion Papers 3102, Institute for the Study of Labor (IZA).
    3. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    4. Sarah Voitchovsky & Bertrand Maitre & Brian Nolan, 2012. "Wage Inequality in Ireland’s “Celtic Tiger” Boom," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 99-133.
    5. Harry Anthony Patrinos & Chris Sakellariou, 2006. "Economic volatility and returns to education in Venezuela: 1992-2002," Applied Economics, Taylor & Francis Journals, vol. 38(17), pages 1991-2005.
    6. Vikesh Amin, 2009. "Sibling Sex Composition and Educational Outcomes: A Review of Theory and Evidence for the UK," LABOUR, CEIS, vol. 23(1), pages 67-96, March.
    7. 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.

    More about this item

    Keywords

    Earnings; education; ability;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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