Is the correlation between income and educational attainment a result of
the payoff to investments in schooling? Since the experiment of randomly
selecting individuals to go to school cannot be performed, non-experimental
methods must be used to estimate the economic returns to schooling. This
paper reviews new studies that measure the effect of schooling on income (1)
by using comparisons of brothers, fathers and sons, and twins and (2) that
focus on natural experiments. These studies provide very credible evidence
that schooling does increase incomes and that earlier studies may have under-
estimated the role of schooling in determining incomes.

In this paper we provide an analytical review of previous estimates of the rate of return on
schooling investments and measure how these estimates vary by country, over time, and by
estimation method. We find evidence of reporting (or “file drawer”) bias in the estimates and,
after due account is taken of this bias, we find that differences due to estimation method are much
smaller than is sometimes reported, although some are statistically significant. We also find that
estimated returns are higher in the U.S. and they have increased in the last two decades.