returns to education

Author
Abstract

This paper presents a survey and interpretation of recent research on
the return to education. The empirical findings in a series of current
papers suggest that the causal effect of education on earnings is
understated by standard estimation methods. Using a simple model of
optimal schooling developed by Gary Becker (1967), I derive an explicit
formula for the conventional estimate of the return to schooling and for
alternative instrumental variables and fixed-effects estimators. The
analysis suggests that instrumental variables estimates based on
"interventions" that affect the schooling choices of children from
relatively disadvantaged family backgrounds will tend to exceed the
corresponding OLS estimates.

Year of Publication
1994
Number
331
Date Published
05/1994
Publication Language
eng
Citation Key
In Solomon Polachek (ed.), Research in Labor Economics, Vol. 14, Greenwich, CT: JAI Press 1995, pp. 23-48
Card, D. (1994). Earnings, Schooling, and Ability Revisited. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01rb68xb85z (Original work published 05/1994AD)
Working Papers
Abstract

An instrumental variable can be used to identify the labor market return to schooling by
allowing comparisons between groups of individuals whose differences in schooling levels are
uncorrelated with their underlying marginal benefit from schooling and with other aspects of
unobserved ability. When the education decisions are based on individual-specific marginal
benefits and costs, there is no single rate of return for everyone in the population. This paper
demonstrates economic insights from methods interpreting instrumental variables estimates as
weighted averages of individual-specific causal effects of schooling on wages by synthesizing
existing theoretical and econometric work, and by using geographic variation in college
proximity as an example of an instrumental variable.
Characterizing the groups affected by the college proximity instrument, I find the largest
increase in schooling levels among individuals from more disadvantaged backgrounds.
Although the data is insufficient to obtain useful estimates of group-specific rates of return, I
directly compute the weight each group receives in the overall estimate. In analyzing the
response function and showing the level of schooling at which individuals change their behavior
in response to the instrument, I demonstrate that the instrument has the greatest impact on the
transition from high school to college. This corresponds to the economic intuition that changes
in the marginal cost of college should be concentrated at this transition and should not affect all
levels of schooling equally. The results suggest that disadvantaged groups are most responsive
to policies lowering college costs, and that increases in education for these groups may have high
payoff.

Year of Publication
1999
Number
415
Date Published
01/1999
Publication Language
eng
Citation Key
Journal of Business and Economic Statistics, Volume 19, No. 3, July 2001
Krueger, A., Farber, H., & Kling, J. (1999). Interpreting Instrumental Variables Estimates of the Returns to Schooling. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01xd07gs69b (Original work published 01/1999AD)
Working Papers
Abstract

In "The Varied Economic Returns to Postsecondary Education: New Evidence from the
Class of 1972", an article recently published in the Journal of Human Resources (Volume 28,
no. 2, pp. 365-382), Norton Grubb reaches two main conclusions: (1) students who enroll in
two-year colleges without completing degrees earn no more than comparable high school
graduates; and (2) degrees from two-year colleges and vocational and technical institutes only
indirectly lead to higher earnings by providing students with access to jobs in which they can
accumulate experience and on-the-job training (i.e., access to "careers" instead of "jobs"). Given
that roughly half of those entering college today do so at community colleges and that roughly
a fifth of federal Pell Grant subsidies are spent at these institutions, such results are quite
provocative.
However, in this comment we show that several of the variables used in Grubb’s paper
are severely mismeasured and that, when they are corrected with reasonable alternatives, his
conclusions no longer receive empirical support. On the contrary, even those who enter but fail
to complete degrees at community colleges do seem to earn significantly more than similar high
school graduates. Further, controlling for work experience has relatively little effect on the
estimated returns.

Year of Publication
1994
Number
326
Date Published
01/1994
Publication Language
eng
Citation Key
Journal of Human Resources, Vol. 30, No. 1, Winter 1995
Kane, T., & Rouse, C. (1994). Comment on W. Norton Grubb, "The Varied Economic Returns to Postsecondary Education: New Evidence from the Class of 1972". Retrieved from http://arks.princeton.edu/ark:/88435/dsp01bk128990w (Original work published 01/1994AD)
Working Papers
Author
Abstract

One million international students study in the U.S. each year and the majority of them compete in global labor markets after graduation. I conduct a large-scale field experiment to study how employers in China value U.S. college education. I sent over 27,000 fictitious online applications to business and computer science jobs in China, randomizing the country of college education. I find that U.S.-educated applicants are on average 18 percent less likely to receive a callback than applicants educated in China, with applicants from very selective U.S. institutions underperforming those from the least selective Chinese institutions. The U.S.-China callback gap is smaller at high-wage jobs, consistent with employers fearing U.S.-educated applicants have better outside options and will be harder to hire and retain. The gap is also smaller at foreign-owned firms, consistent with Chinese-owned firms knowing less about American education. Controlling for high school quality, test scores, or U.S. work experiences does not attenuate the gap, suggesting that it is not driven by employer perceptions of negative selection. A companion employer survey of 260 hiring managers finds consistent and additional supporting evidence for the experimental findings.

Year of Publication
2019
Number
627
Date Published
04/2019
Publication Language
eng
Citation Key
11111
Chen, M. (2019). The Value of U.S. College Education in Global Labor Markets: Experimental Evidence from China. Retrieved from http://arks.princeton.edu/ark:/88435/dsp016108vf04f (Original work published 04/2019AD)
Working Papers