The raising of the school leaving age: Returns in later life

Key takeaways

content: "@buschaRaisingSchoolLeaving2012" -file:@buschaRaisingSchoolLeaving2012

Reading notes

Imported on 2024-06-26 11:21

⭐ Important

• & In the past two decades the UK literature on the returns to education has repeatedly made use of compulsory schooling reforms in order to causally identify the returns to education (see inter alia Harmon and Walker, 1995, 1999; Chevalier and Walker, 2002). These studies have generally found that there is a positive and significant return to an additional year of schooling with early studies reporting instrumental variable estimates in the range of 15%–20%. (p. 389)
• & More recent evidence on the matter from Devereux and Hart (2010) and Grenet (forthcoming) appears to suggest smaller causal estimates in the range of 3%–8%, per additional year of schooling. (p. 389)
• & One disadvantage of (p. 389)
• & pooling multiple years of data is that the estimated return to education is an average return over a particular period of the lifecycle. Fig. 1 presents some of this information graphically:3 (p. 389)
• & We make use of the recently released UK Household Longitudinal Study (UKHLS Wave 1, 2011) which has replaced the now discontinued British Household Panel Survey. The survey contains approximately 40,000 UK households and is conducted over a period of two years. A big advantage of the UKHLS is that there is detailed earnings information available at the individual level and a comparatively large sample size. Given the distance, in terms of years, between collection of this data5 and the most recent school leaving age reform (1st Sep. 1972), this data offers the perfect opportunity to provide evidence on the returns to education for individuals in their early 50s. (p. 390)
• & shows the evolution of log hourly pay and log hourly personal income over a wide age range,7 with a discontinuity estimated at the point of RoSLA.8 While there is a small and non significant increase in log hourly income for the postreform cohorts, there is a larger impact on log hourly pay though still not statistically significant. The relative sizes of these observed discontinuities is in line with the predictions of human capital theory — the additional schooling and qualifications that individuals gained as a result of RoSLA appears to have a positive impact on hourly labour earnings but a much smaller effect on total hourly income. This conclusion is strengthened when looking at the distribution of log hourly pay for those born in the two years before and the two years after the RoSLA in 1972. Fig. 3 illustrates the rightward shift of the entire distribution as a result of RoSLA, indicating that the effect is not limited to an increase at the mean, with a formal test of the equality of distributions re-enforcing the visual evidence. (p. 390)
• & We proceed by estimating the first stage effect of RoSLA on educational outcomes: years of schooling, holding of any qualifications and holding of O-level or higher qualifications. (p. 390)
• & then estimate the reduced form impact of RoSLA on log hourly pay and log total hourly personal income before constructing the 2SLS estimates of the returns to years of schooling and qualifications. (p. 391)
• & We have used the recently released UK Household Longitudinal Study to consider whether the 1972 raising of the school leaving age has had an impact on wages that is still visible when the affected individuals reach their early 50s. (p. 392)
• & Exploiting the large sample size, we focus exclusively on the last two cohorts before the reform and the first two cohorts affected by the reform and find a reduced form ‘‘intention to treat’’ impact of RoSLA on later wages of approximately 5%. This is higher than the reduced form effect estimated in Grenet (forthcoming) using pooled LFS data, where the comparable estimate is 2%. (p. 392)
• & Comparing individuals from a narrow band around the 1972 RoSLA suggests that at around the age of 52, the RoSLA has a stronger impact on wages than at earlier ages.10 (p. 392)