Using Wages to Infer School Quality

This chapter examines the literature that attempts to measure the relationship between labor earnings and the average quality of a state's elementary and secondary schools where school quality is approximated by statewide average characteristics like the teacher-pupil ratio. We present evidence of a number of problems which are difficult, and in our view insurmountable. In short; we argue that the Hedonic approach to inferring school quality is totally unproductive. Even so, we include an annotated bibliography of the various papers that have addressed this topic. The main problems we discuss include: (1) interstate differences in wages are not consistent with a simple school quality-wage relation; we cannot assume a simple national labor market with factor price equalization throughout; (2) interstate migration is differentially selective between state origin and destination pairs and across school completion levels; (3) there need not be a direct relation between the quality of schooling and the wage increments from added schooling; (4) using a single residence state or geographic division for school quality evaluation appears insufficient to resolve the ambiguous link between school quality and wages. In addition, (5) the large majority of empirical studies of school quality represent schools by using characteristics of elementary and secondary schools although a major part of the measured incremental value of schooling refers to wage gains from attending college; (6) the Census-based studies that assume schools are attended in birth states can be wide of the mark; and finally, (7) it is unclear whether the positive correlations between wages and either school expenditures or teachers' wages found in much of this literature is indicative of a causal relationship or whether it captures other economic phenomena that supersede the relationship being suggested.