Labor Market Effects of School Quality: Theory and Evidence


This paper presents an overview and interpretation of the literature relating school quality to
students‘ subsequent labor market success. We begin with a simple theoretical model that
describes the determination of schooling and earnings with varying school quality. A key insight
of the model is that changes in school quality may affect the characteristics of individuals who
choose each level of schooling, imparting a potential selection bias to comparisons of earnings
conditional on education. We then summarize the literature that relates school resources to
students’ earnings and educational attainment. A variety of evidence suggests that students who
were educated in schools with more resources tend to earn more and have higher schooling. We
also discuss two important issues in the literature: the tradeoffs involved in using school-level
versus more aggregated (district or state-level) quality measures; and the evidence on school
quality effects for African Americans educated in the segregated school systems of the South.

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NBER Working Paper No. 5450
Working Papers