IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5288.html
   My bibliography  Save this paper

The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence

Author

Listed:
  • James Heckman
  • Anne Layne-Farrar
  • Petra Todd

Abstract

This paper investigates the economic and empirical foundations of the evidence relating earnings to schooling quality. We replicate the Card-Krueger model for Census years 1970, 1980 and 1990 and find that it consistently produces a strong relationship between schooling quality and the rate of return to schooling. We test key identifying assumptions used by Card and Krueger and others. Several assumptions are rejected. When they are relaxed, the evidence for a strong effect of schooling quality on earning is greatly weakened. A crucial identifying assumption is the absence of selective migration on the basis of earnings. Nonparametric tests strongly reject this hypothesis. The conventional assumption of linearity of the earnings- schooling relationship widely used in the literature is also rejected. The only surviving evidence of any schooling quality effect is in the return to college education. We also test and reject conventional efficiency unit models of the pricing of labor services. The empirically concordant model of earnings is a model of heterogeneous human capital in which regional shocks affect the prices of less- skilled labor.

Suggested Citation

  • James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence," NBER Working Papers 5288, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5288
    Note: LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5288.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    2. David Card & Alan B. Krueger, 1992. "School Quality and Black-White Relative Earnings: A Direct Assessment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 151-200.
    3. Behrman, Jere R & Birdsall, Nancy, 1983. "The Quality of Schooling: Quantity Alone is Misleading," American Economic Review, American Economic Association, vol. 73(5), pages 928-946, December.
    4. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship," NBER Working Papers 5274, National Bureau of Economic Research, Inc.
    5. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 352-352.
    6. George E. Johnson & Frank P. Stafford, 1973. "Social Returns to Quantity and Quality of Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 8(2), pages 139-155.
    7. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-177, February.
    8. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-1177, September.
    9. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel Münich & Jan Svejnar & Katherine Terrell, 2005. "Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 100-123, February.
    2. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship," NBER Working Papers 5274, National Bureau of Economic Research, Inc.
    3. Alan B. Krueger, 2003. "Economic Considerations and Class Size," Economic Journal, Royal Economic Society, vol. 113(485), pages 34-63, February.
    4. Kevin Denny & Colm Harmon, 2001. "Testing for sheepskin effects in earnings equations: evidence for five countries," Applied Economics Letters, Taylor & Francis Journals, vol. 8(9), pages 635-637.
    5. Jairo Guillermo ISAZA CASTRO, 2003. "Women workers in Bogotá´s Informal sector: Gendered impact of structural adjustment Policies in the 1990s," Archivos de Economía 3784, Departamento Nacional de Planeación.
    6. Park, Seonyoung, 2011. "Returning to school for higher returns," Economics of Education Review, Elsevier, vol. 30(6), pages 1215-1228.
    7. Kingsbury, Ian, 2018. "Making sense of low private returns in MENA: A human capital approach," International Journal of Educational Development, Elsevier, vol. 61(C), pages 173-183.
    8. Loeb, Susanna & Bound, John, 1996. "The Effect of Measured School Inputs on Academic Achievement: Evidence form the 1920s, 1930s and 1940s Birth Cohorts," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 653-664, November.
    9. David Card & Alan B. Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," NBER Working Papers 5450, National Bureau of Economic Research, Inc.
    10. Patrick Enu & Edmond Hagan & Eunice Ahouandjinou & Prudence Attah-Obeng, 2014. "Relationship between Education and Wage differentials in Ghana: A Case Study of Accra - a Suburb of greater Accra Region," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(1), pages 277-294, January.
    11. Trostel, P.A., 2000. "Micro Evidence on Human Capital as the Engine of Growth," The Warwick Economics Research Paper Series (TWERPS) 555, University of Warwick, Department of Economics.
    12. Harmon, Colm & Walker, Ian, 1999. "The marginal and average returns to schooling in the UK," European Economic Review, Elsevier, vol. 43(4-6), pages 879-887, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Card & Alan B. Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," NBER Working Papers 5450, National Bureau of Economic Research, Inc.
    2. Borisov Gleb, 2005. "The human capital heterogeneity at the Russian labor market," EERC Working Paper Series 01-151e, EERC Research Network, Russia and CIS.
    3. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship," NBER Working Papers 5274, National Bureau of Economic Research, Inc.
    4. David Card & Alan B. Krueger, 1996. "School Resources and Student Outcomes: An Overview of the Literature and New Evidence from North and South Carolina," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 31-50, Fall.
    5. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Bedi, A.S. & Edwards, J.H.Y., 2001. "The Impact of School Quality on Earnings and Educational Returns," ISS Working Papers - General Series 338, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    7. Honggao Cao, 2005. "Self-Selection and Student Achievement," HEW 0501003, University Library of Munich, Germany.
    8. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    9. Solomon Polachek, 2003. "Mincer's Overtaking Point and the Life Cycle Earnings Distribution," Review of Economics of the Household, Springer, vol. 1(4), pages 273-304, December.
    10. Vasilaky, Kathryn, 2011. "The effects of school quality on fertility in a transition economy," MPRA Paper 38965, University Library of Munich, Germany.
    11. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.
    12. Hans J. Baumgartner, 2003. "Are There Any Class Size Effects On Early Career Earnings In West Germany?," HEW 0305004, University Library of Munich, Germany, revised 05 Nov 2003.
    13. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2003. "Fifty Years of Mincer Earnings Regressions," IZA Discussion Papers 775, Institute of Labor Economics (IZA).
    14. David Card & Alan B. Krueger, 1998. "School Resources and Student Outcomes," The ANNALS of the American Academy of Political and Social Science, , vol. 559(1), pages 39-53, September.
    15. Héctor Cordero-Guzmán, 2001. "Cognitive skills, test scores, and social stratification: The role of family and school-level resources on racial/ethnic differences in scores on standardized tests (AFQT)," The Review of Black Political Economy, Springer;National Economic Association, vol. 28(4), pages 31-71, June.
    16. Alla Kirova, 2011. "Evolution of the Human Capital Doctrine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 94-131.
    17. Daniel Münich & Jan Svejnar & Katherine Terrell, 2005. "Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 100-123, February.
    18. Adrien Montalbo, 2019. "Education and economic development. The influence of primary schooling on municipalities in nineteenth-century France," PSE Working Papers halshs-02286126, HAL.
    19. Machin, Stephen, 2014. "Developments in economics of education research," Labour Economics, Elsevier, vol. 30(C), pages 13-19.
    20. Chong, Alberto & Galdo, Jose C., 2006. "Does the Quality of Training Programs Matter? Evidence from Bidding Processes Data," IZA Discussion Papers 2202, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.