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Heterogeneity in Schooling Rates of Return

  • Henderson, Daniel J.

    ()

    (University of Alabama)

  • Polachek, Solomon

    ()

    (Binghamton University, New York)

  • Wang, Le

    ()

    (University of Alabama)

This paper relaxes the assumption of homogeneous rates of return to schooling by employing nonparametric kernel regression. This approach allows us to examine the differences in rates of return to education both across and within groups. Similar to previous studies we find that on average blacks have higher returns to education than whites, natives have higher returns than immigrants and younger workers have higher returns than older workers. Contrary to previous studies we find that the average gap of the rate of return between white and black workers is larger than previously thought and the gap is smaller between immigrants and natives. We also uncover significant heterogeneity, the extent of which differs both across and within groups. The estimated densities of returns vary across groups and time periods and are often skewed. For example, during the period 1950-1990, at least 5% of whites have negative returns. Finally, we uncover the characteristics common amongst those with the smallest and largest returns to education. For example, we find that immigrants, aged 50-59, are most likely to have rates of return in the bottom 5% of the population.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5662.

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Length: 52 pages
Date of creation: Apr 2011
Date of revision:
Publication status: published in: Economics of Education Review, 2011, 30 (6), 1202-1214
Handle: RePEc:iza:izadps:dp5662
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  1. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers 3037, C.E.P.R. Discussion Papers.
  2. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2008. "Earnings Functions and Rates of Return," IZA Discussion Papers 3310, Institute for the Study of Labor (IZA).
  3. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2003. "Fifty Years of Mincer Earnings Regressions," IZA Discussion Papers 775, Institute for the Study of Labor (IZA).
  4. Francisco L. Rivera-Batiz, 2007. "How Do Migrants from Latin America and the Caribbean Fare in the US Labour Market?," The World Economy, Wiley Blackwell, vol. 30(9), pages 1399-1429, 09.
  5. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, Elsevier.
  6. Cheng Hsiao & Qi Li & Jeff Racine, 2006. "A Consistent Model Specification Test with Mixed Discrete and Continuous Data," IEPR Working Papers 06.47, Institute of Economic Policy Research (IEPR).
  7. Paul W. Miller & Barry R. Chiswick, 1999. "Language skills and earnings among legalized aliens," Journal of Population Economics, Springer, vol. 12(1), pages 63-89.
  8. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, volume 1, number 8355.
  9. Racine, Jeff & Li, Qi, 2004. "Nonparametric estimation of regression functions with both categorical and continuous data," Journal of Econometrics, Elsevier, vol. 119(1), pages 99-130, March.
  10. Beth J. Soldo & Olivia S. Mitchell & Rania Tfaily & John F. McCabe, 2006. "Cross-Cohort Differences in Health on the Verge of Retirement," NBER Working Papers 12762, National Bureau of Economic Research, Inc.
  11. Koop, Gary M & Tobias, Justin, 2004. "Learning About Heterogeneity in Returns to Schooling," Staff General Research Papers 12008, Iowa State University, Department of Economics.
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