This paper reviews and interprets the literature on the effect of
school resources on students‘ eventual earnings and educational
attainment. In addition, new evidence is presented on the impact
of the great disparity in school resources between black and white
students in North and South Carolina that existed in the first half
of the 20th century, and the subsequent narrowing of these resource
disparities. Following birth cohorts over time, gaps in earnings
and educational attainment for blacks and whites in the Carolinas
tend to mirror the gaps in school resources.

This paper reinvestigates the evidence on the impact of the minimum wage on
employment in Puerto Rico. The strongest evidence that the minimum wage had a negative
effect on employment comes from an aggregate time series analysis. The weakest evidence
comes from cross-industry analyses. The main finding of the paper, however, is that the
statistical evidence of a negative employment effect of the minimum wage in Puerto Rico is
surprisingly fragile.

This paper evaluates evidence on the effectiveness of elementary and secondary schooling in the
U.S. Contrary to popular perception, most standardized test scores have not declined in the last
quarter century, and the National Assessment of Educational Progress (NAEP) data show a
modest upward trend. In addition, school spending per pupil and NAEP scores exhibit a positive
correlation in the aggregate data. A review of the Tennessee Student-Teacher Achievement Ratio
(STAR) experiment indicates that students who were randomly assigned to smaller classes
performed better on standardized tests. Both the aggregate NAEP data and the STAR experiment
suggest that a 7 student reduction in class size is associated with a 5 to 8 percentile point increase
in test scores, on average. Evidence also suggests that students from low socioeconomic status
families learn just as much during the school year as students from high socioeconomic status
families, but students from low socioeconomic status families fall behind during the summer
months. Finally, the earnings of high school graduates relative to high school dropouts increased
substantially between 1979 and 1996, suggesting that high schools provide skills that are valued
by the labor market.

This paper summarizes and tries to reconcile evidence from the microeconometric and empirical
macro growth literatures on the effect of schooling on income and GDP growth. Much
microeconometric evidence suggests that education is an important causal determinant of income
for individuals within countries. At a national level, however, recent studies have found that
increases in educational attainment are unrelated to economic growth. This discrepancy appears to
be a result of the high rate of measurement error in first-differenced cross-country education data.
Afier accounting for measurement error, the effect of changes in educational attainment on income
growth in cross-country data is at least as great as microeconometric estimates of the rate of return
to years of schooling. Another finding of the macro growth literature -- that economic growth
depends positively on the initial stock of human capital -- is not robust when the assumption of a
constant-coefficient model is relaxed.

This paper presents evidence showing that individuals’ season of birth is
related to their educational attainment because of the combined effects of
school start age policy and compulsory school attendance laws. In most school
districts, individuals born in the beginning of the year start school at a
slightly older age, and therefore are eligible to drop out of school after
completing fewer years of schooling than individuals born near the end of the
year. Our estimates suggest that as many as 25 percent of potential dropouts
remain in school because of compulsory schooling laws. We estimate the impact
of compulsory schooling on earnings by using quarter of birth as an
instrumental variable for education in an earnings equation. This provides a
valid identification strategy because date of birth is unlikely to be
correlated with omitted earnings determinants. The instrumental variables
estimate of the rate of return to education is remarkably close to the
ordinary least squares estimate, suggesting that there is little ability bias
in conventional estimates of the return to education. The results also imply
that individuals who are compelled to attend school longer than they desire by
compulsory schooling laws reap a substantial return for their extra schooling.

In this paper we take a “market-based” approach to examine whether increased school expenditures
are valued by potential residents and whether the current level of public school provision is inefficient. We
do so by employing an instrumental variables strategy to estimate the effect of state education aid on
residential property values. We find evidence that, on average, additional state aid is valued by potential
residents and that school districts appear to spend efficiently or, if anything, underspend. We also find that
school districts spend less efficiently in areas in which they face little or no competition from other public
schools, in large districts, and in areas in which residents are poor or less educated. One interpretation of
these results is that increased competition has the potential to increase school efficiency in some areas.

One of the best documented relationships in economics is the link between education and
income: higher educated people have higher incomes. Advocates argue that education provides
skills, or human capital, that raises an individual‘s productivity. Critics argue that the documented
relationship is not causal. Education does not generate higher incomes; instead, individuals with
higher ability receive more education and more income. This essay reviews the evidence on the
relationship between education and income. We focus on recent studies that have attempted to
determine the casual effect of education on income by either comparing income and education
differences within families or using exogenous determinants of schooling in what are sometimes
called “natural experiments.” In addition, we assess the potential for education to reduce income
disparities by presenting evidence on the return to education for people of differing family
backgrounds and measured ability.
The results of all these studies are surprisingly consistent: they indicate that the return to
schooling is not caused by an omitted correlation between ability and schooling. Moreover, we find
no evidence that the return to schooling differs significantly by family background or by the
measured ability of the student.

This paper tries to reconcile evidence on the effect of schooling on income and on GDP growth
from the microeconometric and empirical macro growth literatures. Much microeconometric
evidence suggests that education is an important causal determinant of income for individuals
within countries as diverse as Sweden and the United States. At a national level, however, recent
studies have found that increases in educational attainment are unrelated to economic growth.
This finding is shown to be a spurious result of the extremely high rate of measurement error in
first-differenced cross-country education data. Afier accounting for measurement error, the
effect of changes in educational attainment on income growth in cross-country data is at least as
great as microeconometric estimates of the rate of return to years of schooling. We also
investigate another finding of the macro growth literature -- that economic growth depends
positively on the initial stock of human capital. We find that the effect of the initial level of
education on growth is sensitive to the econometric assumptions that are imposed on the data
(e.g., constant-coefficient assumption), as well as to the other covariates included in the model.
Perhaps most importantly, we find that the initial level of education does not appear to have a
significant effect on economic growth among OECD countries. The conclusion comments on
policy implications for Sweden based on the human capital literature.

In this paper we use data on brothers, and fathers and sons, to estimate the economic
returns to schooling. Our goal is to determine whether the correlation between earnings and
schooling is due, in part, to the correlation between family backgrounds and schooling. The
basic idea is to contrast the differences between the schooling of brothers, and fathers and sons,
with the differences in their respective earnings. Since individuals linked by family affiliation
are more likely to have similar innate ability and family backgrounds than randomly selected
individuals our procedure provides a straightforward control for unobserved family attributes.
Our empirical results indicate that in the sample of brothers the ordinary least squares
estimates of the return to schooling may be biased upward by some 25% by the omission of
family background factors. Adjustments for measurement error, however, imply that the
intrafamily estimate of the returns to schooling is biased downward by about 25% also, so that
the ordinary least squares estimate suffers from very little overall bias. Using data on fathers
and sons introduces some ambiguity into these findings, as commonly used specification tests
reject our simplest models of the role of family background in the determination of earnings.

Between 1960 and 1980 the gap in earnings between black and white
males narrowed by 15 percent. A detailed analysis of 1960, 1970, and 1980
Census data indicates that increases in the relative return to education
were largely responsible for black workers’ relative earnings gains. One
explanation for these higher returns is that they reflect the market
valuation of higher-quality schooling available to later cohorts of black
students. To investigate the role of school quality in the convergence of
black and white earnings, we have assembled data on three aspects of school
quality -- pupil/teacher ratios, annual teacher pay, and term length -- for
black and white schools in l8 segregated states from 1915 to 1966. The
school quality data are then linked to estimated rates of return to
education for men from different cohorts and states. Improvements in the
relative quality of black schools explain roughly 20 percent of the
narrowing of the black-white earnings gap in this period.