Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship
This paper examines the economic and empirical foundations of the aggregate evidence on the effect of schooling quality on earnings. A common framework is presented which nests all previous studies as special cases. We discuss two crucial identifying assumptions and test them. The first assumption is the absence of region of birth - region of resident interactions in the return to schooling. This rules out patterns of migration on the basis of realized earnings in the destination state. Both parametric and nonparametric versions of this hypothesis are tested. Using 1970, 1980 and 1990 Census data, it is decisively rejected. A second assumption is that log earnings equations are linear - or nearly linear in schooling. This assumption is false. We find that estimated earnings-quality relationships are sensitive to specification of the earnings function. When false linearity assumptions are relaxed, the only effect of measured schooling quality is on the returns for college graduates. The evidence for an aggregate earnings-quality relationship is weak once false empirical restrictions are relaxed.
|Date of creation:||Sep 1995|
|Date of revision:|
|Publication status:||published as Burtless, G. (ed.) Does Money Matter? The Effect of School Resources on Student Achievement and Success. Brookings, July 1996.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Sherwin Rosen, 1983. "A Note on Aggregation of Skills and Labor Quality," Journal of Human Resources, University of Wisconsin Press, vol. 18(3), pages 425-431.
- Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-77, February.
- Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
- James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence," NBER Working Papers 5288, National Bureau of Economic Research, Inc.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- George E. Johnson & Frank P. Stafford, 1973. "Social Returns to Quantity and Quality of Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 8(2), pages 139-155.
- Behrman, Jere R & Birdsall, Nancy, 1983. "The Quality of Schooling: Quantity Alone is Misleading," American Economic Review, American Economic Association, vol. 73(5), pages 928-46, December.
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