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Causal Returns to Education

Author

Listed:
  • Patrinos, Harry Anthony

    (University of Arkansas, Fayetteville)

  • Psacharopoulos, George

    (Georgetown University)

Abstract

Using 182 estimates from 140 studies in 55 countries, this paper compares ordinary least squares (OLS) and instrumental variables (IV) estimates of the private returns to schooling. IV returns average 9.7 percent—38 percent higher than OLS—and exceed OLS in nearly 80 percent of cases, with the largest gaps in developing countries. These patterns align with theories of diminishing marginal returns, scarcity rents, and attenuation from measurement error. While IV methods mitigate bias, instrument validity and external validity concerns persist. Evidence consistently shows substantial causal returns, particularly for disadvantaged populations, underscoring the need for rigorous research.

Suggested Citation

  • Patrinos, Harry Anthony & Psacharopoulos, George, 2025. "Causal Returns to Education," IZA Discussion Papers 18077, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp18077
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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