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“Convexification” and “deconvexification” of the peruvian wage profile: a tale of declining education quality


  • Juan F. Castro

    (Universidad del Pacífico)

  • Gustavo Yamada

    (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.

Suggested Citation

  • Juan F. Castro & Gustavo Yamada, 2012. "“Convexification” and “deconvexification” of the peruvian wage profile: a tale of declining education quality," Working Papers 12-02, Centro de Investigación, Universidad del Pacífico.
  • Handle: RePEc:pai:wpaper:12-02

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    References listed on IDEAS

    1. repec:fth:prinin:357 is not listed on IDEAS
    2. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
    3. 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.
    4. Martin Nordin & Dan-Olof Rooth, 2014. "Increasing Returns to Schooling by Ability? A Comparison between the USA and Sweden," Manchester School, University of Manchester, vol. 82, pages 1-20, December.
    5. Clifford Clogg & James Shockey, 1984. "Mismatch between occupation and schooling: A prevalence measure, recent trends and demographic analysis," Demography, Springer;Population Association of America (PAA), vol. 21(2), pages 235-257, May.
    6. 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).
    7. repec:rim:rimwps:30-08 is not listed on IDEAS
    8. Juan F. 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, Centro de Investigación, Universidad del Pacífico.
    9. 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 3-33, February.
    10. David Card & Alan B. Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," NBER Working Papers 5450, National Bureau of Economic Research, Inc.
    11. Gustavo Yamada & Juan F. 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, Centro de Investigación, Universidad del Pacífico.
    12. Juan F. Castro & Eduardo Morón & Cynthia Sanborn, 2009. "Helping Reforms Deliver Inclusive Growth in Peru," Chapters of Books,in: L. Rojas-Suarez (ed.), Growing Pains in Latin America, edition 1, volume 1, chapter 1, pages 236-293 Fondo Editorial, Universidad del Pacífico.
    13. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper series 30_08, Rimini Centre for Economic Analysis.
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    Cited by:

    1. Nora Lustig & Luis F. Lopez-Calva & Eduardo Ortiz-Juarez, 2013. "Deconstructing the Decline in Inequality in Latin America," Working Papers 1314, Tulane University, Department of Economics.
    2. Adrian Robles & Marcos Robles, 2016. "Changes in Welfare with a Heterogeneous Workforce: The Case of Peru," IDB Publications (Working Papers) 7507, Inter-American Development Bank.
    3. Peter Paz & Carlos Urrutia, 2015. "Economic Growth and Wage Stagnation in Peru: 1998–2012," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 328-345, May.

    More about this item


    Returns to education; ability; education quality; Peru;

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity


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