IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc13/79910.html
   My bibliography  Save this paper

Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation

Author

Listed:
  • Kamhöfer, Daniel
  • Schmitz, Hendrik

Abstract

We analyze the causal effect of education on old-age cognitive abilities using German Socio-Economic Panel (SOEP) data and regional variation in mandatory years of schooling and the supply of schools. Our outcome variable is the score an individual reaches in an ultra-short intelligence test. We explain this score, using instrumented education. Instrumental variable estimation is necessary since on the one hand, schooling is highly affected by cognitive skills (reverse causality), and, on the other hand, both are influenced by third factors like income and health (possibly omitted variable bias). Using variations in education policy in the German federal states we are able to instrument education for three groups of students which cover all levels of educational achievement. Unlike previous studies this allows us to estimate three different local average treatment effects. The estimated effects range from 14% to 53% of a standard deviation. We find the strongest effect for students with intermediate education.

Suggested Citation

  • Kamhöfer, Daniel & Schmitz, Hendrik, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79910, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79910
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/79910/1/VfS_2013_pid_875.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Angus Deaton, 2010. "Instruments, Randomization, and Learning about Development," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 424-455, June.
    2. Jörn-Steffen Pischke & Till von Wachter, 2008. "Zero Returns to Compulsory Schooling in Germany: Evidence and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 592-598, August.
    3. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 356-398, June.
    4. Aakvik, Arild & Salvanes, Kjell G. & Vaage, Kjell, 2010. "Measuring heterogeneity in the returns to education using an education reform," European Economic Review, Elsevier, vol. 54(4), pages 483-500, May.
    5. Michael Lechner & Ruth Miquel & Conny Wunsch, 2011. "Long‐Run Effects Of Public Sector Sponsored Training In West Germany," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 742-784, August.
    6. Ichino, Andrea & Winter-Ebmer, Rudolf, 1999. "Lower and upper bounds of returns to schooling: An exercise in IV estimation with different instruments," European Economic Review, Elsevier, vol. 43(4-6), pages 889-901, April.
    7. repec:hal:pseose:halshs-00754526 is not listed on IDEAS
    8. Oosterbeek, Hessel & Webbink, Dinand, 2007. "Wage effects of an extra year of basic vocational education," Economics of Education Review, Elsevier, vol. 26(4), pages 408-419, August.
    9. Nicole Schneeweis & Vegard Skirbekk & Rudolf Winter-Ebmer, 2012. "Does schooling improve cognitive functioning at older ages?," NRN working papers 2012-11, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    10. Paul J. Devereux & Robert A. Hart, 2010. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Economic Journal, Royal Economic Society, vol. 120(549), pages 1345-1364, December.
    11. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics Department Working Paper Series n540195, Department of Economics, National University of Ireland - Maynooth.
    12. Mazzonna, Fabrizio & Peracchi, Franco, 2012. "Ageing, cognitive abilities and retirement," European Economic Review, Elsevier, vol. 56(4), pages 691-710.
    13. Jürges, Hendrik & Reinhold, Steffen & Salm, Martin, 2011. "Does schooling affect health behavior? Evidence from the educational expansion in Western Germany," Economics of Education Review, Elsevier, vol. 30(5), pages 862-872, October.
    14. Christian Dustmann, 2004. "Parental background, secondary school track choice, and wages," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 209-230, April.
    15. Nils Saniter, 2012. "Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity," SOEPpapers on Multidisciplinary Panel Data Research 458, DIW Berlin, The German Socio-Economic Panel (SOEP).
    16. Jürgen Schupp & Sabrina Herrmann & Peter Jaensch & Frieder R. Lang, 2008. "Erfassung kognitiver Leistungspotentiale Erwachsener im Sozio-oekonomischen Panel (SOEP)," Data Documentation 32, DIW Berlin, German Institute for Economic Research.
    17. Ronny Freier & Johanna Storck, 2012. "The Treatment Effect of Attending a High-Quality School and the Influence of Unobservables," Discussion Papers of DIW Berlin 1256, DIW Berlin, German Institute for Economic Research.
    18. Andrea Ichino & Rudolf Winter-Ebmer, 2004. "The Long-Run Educational Cost of World War II," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 57-86, January.
    19. Harmon, Colm & Walker, Ian, 1995. "Estimates of the Economic Return to Schooling for the United Kingdom," American Economic Review, American Economic Association, vol. 85(5), pages 1278-1286, December.
    20. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    21. Julien Grenet, 2013. "Is Extending Compulsory Schooling Alone Enough to Raise Earnings? Evidence from French and British Compulsory Schooling Laws," PSE-Ecole d'économie de Paris (Postprint) halshs-00754526, HAL.
    22. repec:pri:rpdevs:deaton_instruments_randomization_learning_all_04april_2010 is not listed on IDEAS
    23. Jörn-Steffen Pischke, 2007. "The Impact of Length of the School Year on Student Performance and Earnings: Evidence From the German Short School Years," Economic Journal, Royal Economic Society, vol. 117(523), pages 1216-1242, October.
    24. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    25. James J. Heckman & Jora Stixrud & Sergio Urzua, 2006. "The Effects of Cognitive and Noncognitive Abilities on Labor Market Outcomes and Social Behavior," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 411-482, July.
    26. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    27. Santi Budria & Ada Ferrer-i-Carbonell, 2012. "Income Comparisons and Non-cognitive Skills," SOEPpapers on Multidisciplinary Panel Data Research 441, DIW Berlin, The German Socio-Economic Panel (SOEP).
    28. James Heckman & Edward Vytlacil, 2001. "Identifying The Role Of Cognitive Ability In Explaining The Level Of And Change In The Return To Schooling," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 1-12, February.
    29. Bingley, Paul & Martinello, Alessandro, 2013. "Mental retirement and schooling," European Economic Review, Elsevier, vol. 63(C), pages 292-298.
    30. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 65-97, October.
    31. Julien Grenet, 2013. "Is Extending Compulsory Schooling Alone Enough to Raise Earnings? Evidence from French and British Compulsory Schooling Laws," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 176-210, January.
    32. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863, Elsevier.
    33. Richard B. Freeman, 1979. "The Effect of Demographic Factors on Age-Earnings Profiles," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 289-318.
    34. Torberg Falch & Sofia Sandgren Massih, 2011. "The Effect Of Education On Cognitive Ability," Economic Inquiry, Western Economic Association International, vol. 49(3), pages 838-856, July.
    35. Magnus Carlsson & Gordon B. Dahl & Björn Öckert & Dan-Olof Rooth, 2015. "The Effect of Schooling on Cognitive Skills," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 533-547, July.
    36. Philip Oreopoulos, 2006. "Estimating Average and Local Average Treatment Effects of Education when Compulsory Schooling Laws Really Matter," American Economic Review, American Economic Association, vol. 96(1), pages 152-175, March.
    37. Elizabeth U. Cascio & Ethan G. Lewis, 2006. "Schooling and the Armed Forces Qualifying Test: Evidence from School-Entry Laws," Journal of Human Resources, University of Wisconsin Press, vol. 41(2).
    38. Heineck, Guido & Anger, Silke, 2010. "The returns to cognitive abilities and personality traits in Germany," Labour Economics, Elsevier, vol. 17(3), pages 535-546, June.
    39. Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 979-1014.
    40. James Banks & Fabrizio Mazzonna, 2012. "The Effect of Education on Old Age Cognitive Abilities: Evidence from a Regression Discontinuity Design," Economic Journal, Royal Economic Society, vol. 122(560), pages 418-448, May.
    41. Harmon, Harmon & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
    42. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    43. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    44. Sascha BECKER & Frank SIEBERN-THOMAS, 2001. "Returns to Education in Germany: A Variable Treatment Intensity Approach," Economics Working Papers ECO2001/09, European University Institute.
    45. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dahmann, Sarah C., 2017. "How does education improve cognitive skills? Instructional time versus timing of instruction," Labour Economics, Elsevier, vol. 47(C), pages 35-47.
    2. Yuzhakov, Vladimir Nikolaevich (Южаков, Владимир Николаевич) & Talapina, E. V. (Талапина, Э. В.) & Alexandrov, Oleg (Александров, Олег) & Tikhomirov, Y. A. (Тихомиров, Ю. А.) & Dobrolyubova, Elena (До, 2015. "The Concept of the Federal Law on Public Administration in the Russian Federation [Концепция Федерального Закона О Государственном Управлении В Российской Федерации]," Published Papers om30, Russian Presidential Academy of National Economy and Public Administration.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany – Heterogeneous Eff ects and Skill Formation," Ruhr Economic Papers 0446, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0446 is not listed on IDEAS
    3. Cygan-Rehm, Kamila, 2018. "Is additional schooling worthless? Revising the zero returns to compulsory schooling in Germany," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181528, Verein für Socialpolitik / German Economic Association.
    4. Franziska Hampf, 2019. "The Effect of Compulsory Schooling on Skills: Evidence from a Reform in Germany," ifo Working Paper Series 313, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Jörn-Steffen Pischke & Till von Wachter, 2008. "Zero Returns to Compulsory Schooling in Germany: Evidence and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 592-598, August.
    6. Abdurrahman Aydemir & Murat G. Kirdar, 2017. "Low Wage Returns to Schooling in a Developing Country: Evidence from a Major Policy Reform in Turkey," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 1046-1086, December.
    7. de New, Sonja C. & Schurer, Stefanie & Sulzmaier, Dominique, 2021. "Gender differences in the lifecycle benefits of compulsory schooling policies," European Economic Review, Elsevier, vol. 140(C).
    8. Tony Beatton & Michael P. Kidd & Matteo Sandi, 2020. "School indiscipline and crime," CEP Discussion Papers dp1727, Centre for Economic Performance, LSE.
    9. Stanislav Avdeev, 2020. "Zero Returns To Higher Education: Evidence From A Natural Experiment," HSE Working papers WP BRP 236/EC/2020, National Research University Higher School of Economics.
    10. Daniel Gray & Alberto Montagnoli & Mirko Moro, 2017. "Does education improve financial outcomes? Quasi-experimental evidence from Britain," Working Papers 2017010, The University of Sheffield, Department of Economics.
    11. Nikolov, Plamen & Jimi, Nusrat & Chang, Jerray, 2020. "The Importance of Cognitive Domains and the Returns to Schooling in South Africa: Evidence from Two Labor Surveys," Labour Economics, Elsevier, vol. 65(C).
    12. Paul J. Devereux & Robert A. Hart, 2010. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Economic Journal, Royal Economic Society, vol. 120(549), pages 1345-1364, December.
    13. Hofmarcher, Thomas, 2021. "The effect of education on poverty: A European perspective," Economics of Education Review, Elsevier, vol. 83(C).
    14. Huzeyfe Torun, 2018. "Compulsory Schooling and Early Labor Market Outcomes in a Middle-Income Country," Journal of Labor Research, Springer, vol. 39(3), pages 277-305, September.
    15. Gehrsitz, Markus & Williams, Jr., Morgan C., 2024. "The Effects of Compulsory Schooling on Health and Hospitalization over the Life Cycle," IZA Discussion Papers 17050, Institute of Labor Economics (IZA).
    16. Markus Gehrsitz & Morgan C. Williams, "undated". "The Effects of Compulsory Schooling on Health and Hospitalization over the Life Cycle," Working Papers 2303, University of Strathclyde Business School, Department of Economics, revised May 2020.
    17. Ciprian Domnisoru, 2021. "Heterogeneity across Families in the Impact of Compulsory Schooling Laws," Economica, London School of Economics and Political Science, vol. 88(350), pages 399-429, April.
    18. Chen, Yi & Jiang, Sheng & Zhou, Li-An, 2020. "Estimating returns to education in urban China: Evidence from a natural experiment in schooling reform," Journal of Comparative Economics, Elsevier, vol. 48(1), pages 218-233.
    19. Liwiński, Jacek, 2018. "The Impact of Compulsory Schooling on Earnings. Evidence from the 1999 Education Reform in Poland," GLO Discussion Paper Series 253, Global Labor Organization (GLO).
    20. Clark, Damon, 2023. "School quality and the return to schooling in Britain: New evidence from a large-scale compulsory schooling reform," Journal of Public Economics, Elsevier, vol. 223(C).
    21. Jacek Liwiński, 2020. "The Impact of Compulsory Schooling on Hourly Wage: Evidence From the 1999 Education Reform in Poland," Evaluation Review, , vol. 44(5-6), pages 437-470, October.

    More about this item

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79910. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.