Working Paper: CEPR ID: DP3037
Authors: Colm Harmon; Vincent Hogan; Ian Walker
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.
Keywords: random coefficients; return to schooling
JEL Codes: C31; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| returns to schooling (I26) | educational supply (I21) |
| expansion of postcompulsory education in the UK (I23) | mean return to schooling (I26) |
| expansion of postcompulsory education in the UK (I23) | dispersion of returns to schooling (I26) |