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Should I Stay or Should I Go? Educational Choices and Earnings: An Empirical Study for Portugal

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  • Modesto, Leonor

    (Universidade Catolica Portuguesa, Lisbon)

Abstract

In this paper we analyse educational choices and earnings of individuals at two different levels in the Portuguese educational system. At each potential exit level we consider two decisions: the decision to continue studying and the employment decision, whereas normally only the first decision is modelled. Correlation between the error terms of the earnings functions and the decision functions, for each level of education, is allowed and we correct for the potential selectivity bias. We find empirical support for the existence of selectivity bias as the errors of the earnings functions are correlated with the disturbances of both decision functions for both educational levels considered. Moreover it is precisely the existence of selectivity mechanisms that renders the decisions actually taken by individuals optimal in terms of comparative earnings advantage. The obtained marginal rates of return to additional education vary between 2.3 and 9.6 percent per additional year of schooling, depending on whether or not selectivity effects are excluded from the computations. This finding reinforces again the importance of selectivity mechanisms in explaining educational choices.

Suggested Citation

  • Modesto, Leonor, 2000. "Should I Stay or Should I Go? Educational Choices and Earnings: An Empirical Study for Portugal," IZA Discussion Papers 230, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp230
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    Cited by:

    1. Goulart, Pedro & Bedi, Arjun S., 2008. "Child labour and educational success in Portugal," Economics of Education Review, Elsevier, vol. 27(5), pages 575-587, October.
    2. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.

    More about this item

    Keywords

    earnings; Educational choices; selectivity;
    All these keywords.

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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