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“Convexification” and “Deconvexification” of the Peruavian Wage Profile: A Tale of Declining Education Quality

  • Juan Castro

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Gustavo Yamada

    ()

    (Departamento de Economía, Universidad del Pacífico)

"Peruvian average wage profile with respect to schooling is convex. Returns to higher education are around nine percentage points larger than returns to basic education. We explore two possible explanations for this phenomenon: a composition effect driven by differences in individual ability and heterogeneous education quality. We use the theoretical models developed in Card (1994) and Card and Krueger (1996) to analyze the effects that individual ability and education quality can have on the observed relationship between wages and schooling. We test the implications of these models using Peruvian data from a novel survey that includes measures of cognitive skills. We do not find evidence of increasing returns by ability. Instead, empirical results are consistent with the predictions of a model of endogenous schooling with heterogeneous education quality. Evidence suggests that the Peruvian convex wage schedule is the result of two superimposed wage profiles: one corresponding to a low quality basic education system and, the other, to a higher education system with better quality. Declining education quality at basic and higher education, thus, appear to have a role when explaining the “convexification” and recent “deconvexification” of the wage profile, respectively."

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File URL: http://www.up.edu.pe/ciup/SiteAssets/Lists/JER_Jerarquia/EditForm/12-02.pdf
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Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 12-02.

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Length: 25 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:pai:wpaper:12-02
Contact details of provider: Web page: http://www.up.edu.pe/
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  1. Yamada, Gustavo, 2009. "Rendimientos de la educación superior en el mercado laboral. El caso de Perú," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(302), pages 485-511, abril-jun.
  2. Clifford Clogg & James Shockey, 1984. "Mismatch between occupation and schooling: A prevalence measure, recent trends and demographic analysis," Demography, Springer, vol. 21(2), pages 235-257, May.
  3. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper Series 30-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  4. Nordin, Martin & Rooth , Dan-Olof, 2011. "Increasing Returns to Schooling by Ability? A Comparison Between the US and Sweden," Working Papers 2011:17, Lund University, Department of Economics.
  5. Juan Castro & Gustavo Yamada & Omar Arias, 2011. "Higher Education Decisions in Peru: On the Role of Financial Constraints, Skills, and Family Background," Working Papers 11-14, Departamento de Economía, Universidad del Pacífico, revised Dec 2011.
  6. Gustavo Yamada & Juan Castro, 2010. "Educación superior e ingresos laborales: Estimaciones paramétricas y no paramétricas de la rentabilidad por niveles y carreras en el Perú," Working Papers 10-06, Departamento de Economía, Universidad del Pacífico, revised Dec 2010.
  7. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
  8. Flavio Cunha & James J. Heckman, 2008. "Formulating, Identifying and Estimating the Technology of Cognitive and Noncognitive Skill Formation," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
  9. David Card & Alan Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," Working Papers 736, Princeton University, Department of Economics, Industrial Relations Section..
  10. Petra E. Todd & Kenneth I. Wolpin, 2003. "On The Specification and Estimation of The Production Function for Cognitive Achievement," Economic Journal, Royal Economic Society, vol. 113(485), pages F3-F33, February.
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