Evaluating the impact of education on earnings in the UK: Models, methods and results from the NCDS

(2003) - Barbara Sianesi, Lorraine Dearden, Richard Blundell

Journal:
Link:: http://www.ifs.org.uk/wps/wp0320.pdf
DOI:: 10.1920/wp.ifs.2003.0320
Links::
Tags:: #paper #NCDS #Income
Cite Key:: [@Sianesi2003]

Abstract

When looking at the relationship between individual earnings and schooling, there are potential sources of bias which arise due to individual education choices; individuals of higher unobserved ability or with higher unobserved payoffs from schooling may for instance invest more in education. This paper reviews alternative models and estimation methods meant to overcome these sources of bias and to thus recover the true causal effect of education on earnings. As to the specification of the model, the paper highlights the distinction between models which focus on the impact of a specific educational level, such as undertaking higher education compared to not doing so (single-treatment models), and models which allow for a number of sequential levels of schooling (multiple-treatment models). The latter framework is particularly attractive when interest lies in a wide range of educational qualifications with potentially very different returns. A second crucial choice as to model specification concerns the nature of the returns to education, in particular whether to allow returns to vary across individuals for the same educational qualification (homogeneous versus heterogeneous returns models). Once heterogeneity in returns is allowed, it becomes crucial to define the subpopulation for whom one is interested in estimating returns.

Notes

“family background differences is important and reduces the return to education at all levels” (Sianesi et al., 2003, p. 3)