This paper quantities the extent to which the rise in the measured
return to education between I979 and 2000 is reflecting a change in the
causal effect of education on labor market eamings. The conceptual issues
are formalized in a two-factor model of ability. schooling and eamings that
allows heterogeneity in absolute and comparative advantage across the
population. ln particular, the framework implies that a rise in the true return
to education will increase the degree of convexity of the relationship
between eamings and years of education for a fixed cohort of individuals.
Permanent differences in the levels of the eamings-schooling relationship
across cohorts will arise if the mapping between schooling and ability differs
across cohorts. These implications of the two-factor model allow the
identification of changes in the causal effect of education over time and
across cohorts.