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Dispersion in the Economic Return to Schooling

Author

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  • Walker, Ian
  • Harmon, Colm
  • Hogan, Vincent

Abstract

In this Paper we extend the standard human capital earnings function to include dispersion in the rate of return to schooling by treating the return as a random coefficient. One motivation is that if dipping further into the ability distribution has brought about the increase in supply of skilled workers. Alternatively if the expansion in post-compulsory education comes about through relaxed credit constraints then we might expect this to increase average ability in the pool of educated workers. Either event might lead to a rise in the variance in returns. Based on a sample of data from the United Kingdom our estimates suggest that neither the mean nor the dispersion in returns to schooling has altered significantly over time. This is consistent with educational expansion not leading to a disproportionate inflow of low ability individuals into the system.

Suggested Citation

  • Walker, Ian & Harmon, Colm & Hogan, Vincent, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers 3037, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3037
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    as
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    More about this item

    Keywords

    Return to schooling; Random coefficients;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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