A Human Capital Model of the Effects of Ability and Family Background on Optimal Schooling Levels (original) (raw)
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A Human Capital Model of the Effects of Abilities and Family Background on Optimal Schooling Levels
2006
This paper develops a theoretical model of optimal schooling levels where ability and family background are the central explanatory variables. We derive schooling demand and supply functions based on individual wealth maximization. Using NLSY79 data we stratify our sample into one-year "FTE" work experience cohorts for 1985-1989. Mincer's (1974) "overtaking" cohort (the years of work experience at which individuals' observed earnings approximately equal what they would have been based on schooling and ability alone) corresponds to 13 FTE years of work experience yielding on average a rate of return of 9.6 percent and an average (optimal) 11.4 years of schooling.
A Note on the Interaction of Schooling and Ability
1973
The effect of schooling and ability on earnings is well documented.. However, the existing literature does not demonstrate conclusively whether schooling and ability are complementary determinants of earnings. In particular, recent publications by John Hause and by Paul Taubman and Terence Wales reach opposite conclusions on the existence of an interaction effect._ Interestingly enough the two studies make use of the same data set, the NBER-TH sample. The author reexamines and reestimates various tests for the existence of an interaction in the NBER-TH data..He concludes that despite strong theoretical considerations in support of an interaction effect there is very little statistical evidence for a significant interaction..The theoretical importance of an interaction effect is briefly discussed, followed by a discussion of the Hause and Taubman and Wales tests. Finally, various specifications of the earnings function are estimated and exact tests for an interaction are made. The effect of alternative specifications and tests on the results are compared.
This paper considers links between education and family income using British data. Complex conceptual and modelling questions underpin the education-income relationship and we attempt to build up statistical models that are suited to dealing with these difficulties. We begin by presenting estimated education-income relationships from repeated cross-section data and then move on to consider more detailed models based on rich data from two British birth cohorts (one born in 1958, the other in 1970). All our models uncover a significant education-income correlation. This emerges in models where we use changes to the UK tax system as a quasi-experiment to provide exogenous variations in income that differentially benefited families at different points in the income distribution. It also emerges when we control for aspects of unobserved heterogeneity linked to childhood experiences and family background in the cohort data. Finally, when the same models are estimated across cohorts we uncover an increased sensitivity of education to family income in the later cohort. This reveals that the principal beneficiaries of the education expansion were children from richer families. Therefore a key feature of the expansion in education seen over the period we study was an increase in educational inequality linked to family income.
Essays on the economics of ability, education, and labor market outcomes
2014
The analysis of the heterogeneity in worker ability and its economic implications have been a focus of a broad strand of research in labor economics. Several studies have demonstrated that both cognitive and socio-emotional dimensions of ability have a positive effect on wages, schooling, and the probability of choosing high paying occupations. However, there is no theoretical reason to expect that all dimensions affect outcomes in the same direction. This dissertation, composed by four chapters, shows that mechanical ability, jointly with cognitive and socio-emotional dimensions, affects schooling decisions and labor market outcomes. Moreover, it demonstrates that this facet of ability has a positive economic return and affects schooling decisions and occupational choices differently than other measures of ability. Chapter 2 introduces the concept of mechanical ability, describes the tests used to measure it, and briefly compares this dimension with conventional measures of ability. Chapter 3 presents a general framework to understand the effects of multiple dimensions of ability on outcomes with special emphasis in the selection into occupations and tasks where workers are more productive. This framework is used to decompose the overall effect of unobserved abilities into the components explained by schooling decision, occupational choice, and direct on-the-job productivity. I show that all three dimensions of ability have multiple, heterogeneous, and independent roles. They influence the sorting of workers into schooling and occupations, and also have a direct effect on wages. This implies that a policy that increases ability at advanced ages, when schooling and occupational decisions cannot be altered, may still have a direct impact on wages. Chapter 4, written in collaboration with Sergio Urzúa, analyzes the implications of considering the three dimensions of ability on the decision of attending four-year college. We find that, despite the high return associated with college attendance, individuals with low levels of cognitive and socio-emotional ability but high mechanical ability could expect higher wages by choosing not to attend a four-year college. These results highlight the importance of exploring alternative pathways to successful careers for individuals with a different profile of skills.
Economics of Education Review, 2007
Most of the studies that account for the endogeneity bias when estimating the returns to schooling assume that the relationship between education and earnings is linear. Studies that assume the latter relationship to be non-linear simply ignore the endogeneity bias. Moreover, they either assume an ad-hoc non-linear relationship or argue that non-linearities are due to sheepskin effects. The approach I adopt in this paper allows estimation of the returns to years of schooling without assuming any explicit form of non-linearity while accounting for the endogeneity of education. The results suggest (i) endogeneity is indeed a crucial issue, (ii) there are sharp non-linearities which do not seem to be only due to certification effects and (iii) it is important to account for the impact of education on the returns to other observable characteristics such as age and seniority. r adopt an approach based on rank-order instrumental variables and find estimates for Australia that are close to their OLS counterparts. Selectivity corrected earnings equations using the ordered probit model
Schooling, basic skills and economic outcomes
Economics of Education Review, 2002
This paper uses data from the National Adult Literacy Survey to examine the relationship between schooling and earnings. Basic skills are partitioned between those acquired through schooling and those acquired elsewhere. The study finds that, for the most part, it is the substance of learning in school-the accumulated human capital-that counts. Further, the strength of the human capital explanation versus the credential explanation of returns to schooling varies by race. A large disparity is found between whites and blacks in the way annual earnings respond to basic skills acquired through schooling.
Alternative Estimates of the Effect of Schooling on Earnings
The Review of Economics and Statistics, 2000
This paper examines how assumptions imposed on the data influence estimates of schooling's effect on earnings. The paper models schooling decisions as treatment effects and imposes assumptions about schooling selection to estimate bounds on the treatment effect. The study begins by using the worst-case bounds derived by Manski (1989, 1990, 1994, 1995) and adds assumptions from the Roy model of schooling self-selection to narrow the bounds on the schooling treatment effect. The bounds are narrowed further by using family structure, college proximity, and school-quality characteristics as exclusion restrictions. The selection problem requires the researcher to make explicit assumptions to estimate the effect of schooling on earnings. This paper demonstrates that different selection assumptions yield very different results.
The Effects of Schooling on Lifetime Earnings
2011
Abstract The empirical literature typically estimates returns to education by using current rather than lifetime income, because of data limitations. We use the detailed retrospective information provided by the third wave of the Survey of Health, Ageing and Retirement in Europe (SHARE) to estimate a measure of lifetime income at age ten, which includes both labour and pension income. Using a multi-country setup, we estimate the marginal effect of education on lifetime income using an instrumental variables strategy.
2003
The strong correlation between parents' economic status and that of their children has been welldocumented, but little is known about the extent to which this is a causal phenomenon. This paper attempts to improve our understanding of the causal processes that contribute to intergenerational immobility by exploiting historical changes in compulsory schooling laws that affected the educational attainment of parents without affecting their innate abilities or endowments. We examine the influence of parental compulsory schooling on grade retention status for children aged 7 to 15 using the 1960, 1970 and 1980 U.S. Censuses. Our estimates indicate that a one-year increase in the education of either parent reduces the probability that a child repeats a grade by between two and seven percentage points. Among 15 to 16 year olds living at home, we also estimate that parental compulsory schooling significantly lowers the likelihood of dropping out. These findings suggest that education policies may be able to reduce part of the intergenerational transmission of inequality.