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Dynamic Skill Accumulation, Education Policies and the Return to Schooling

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  • Belzil, Christian

    (Ecole Polytechnique, Paris)

  • Hansen, Jörgen

    (Concordia University)

  • Liu, Xingfei

    (University of Alberta)

Abstract

Using a dynamic skill accumulation model of schooling and labor supply with learning-by-doing, we decompose early life-cycle wage growth of U.S. white males into four main sources: education, hours worked, cognitive skills (AFQT scores) and unobserved heterogeneity, and evaluate the effect of compulsory high school graduation and a reduction in the cost of college. About 60 percent of the differences in slopes of early life-cycle wage profiles are explained by heterogeneity while individual differences in hours worked and education explain the remaining part almost equally. We show how our model is a particularly useful tool to comprehend the distinctions between compulsory schooling and a reduction in the cost of higher education. Finally, because policy changes induce simultaneous movements in observed choices and average per-year effects, linear IV estimates generated by those policy changes are uninformative about the returns to education for those affected. This is especially true for compulsory schooling estimates as they exceed IV estimates generated by the reduction in the cost of higher education even if the latter policy affects individuals with much higher returns than than those affected by compulsory schooling.

Suggested Citation

  • Belzil, Christian & Hansen, Jörgen & Liu, Xingfei, 2017. "Dynamic Skill Accumulation, Education Policies and the Return to Schooling," IZA Discussion Papers 10613, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp10613
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    References listed on IDEAS

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    Cited by:

    1. Binelli, Chiara & Menezes-Filho, Naercio, 2019. "Why Brazil fell behind in college education?," Economics of Education Review, Elsevier, vol. 72(C), pages 80-106.
    2. Martin Fischer & Martin Karlsson & Therese Nilsson & Nina Schwarz, 2020. "The Long-Term Effects of Long Terms – Compulsory Schooling Reforms in Sweden," Journal of the European Economic Association, European Economic Association, vol. 18(6), pages 2776-2823.
    3. Christian Belzil & Jörgen Hansen, 2020. "The evolution of the US family income–schooling relationship and educational selectivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(7), pages 841-859, November.
    4. Christian Belzil & Jörgen Hansen, 2020. "Reconciling Changes in Wage Inequality With Changes in College Selectivity Using a Behavioral Model," CIRANO Working Papers 2020s-36, CIRANO.
    5. Andrew Shephard & Modibo Sidibe, 2019. "Schooling Investment, Mismatch,and Wage Inequality," PIER Working Paper Archive 19-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Belzil, Christian & Poinas, François, 2018. "Estimating a Model of Qualitative and Quantitative Education Choices in France," TSE Working Papers 18-908, Toulouse School of Economics (TSE).
    7. Jack Britton & Ben Waltmann, 2021. "Revisiting the solution of dynamic discrete choice models: time to bring back Keane and Wolpin (1994)?," IFS Working Papers W21/13, Institute for Fiscal Studies.

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    More about this item

    Keywords

    dynamic skill accumulation; education policies; returns to schooling; learning-by-doing; life-cycle labor-supply; IV estimation;
    All these keywords.

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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