Working Paper: NBER ID: w11544
Authors: James J. Heckman; Lance J. Lochner; Petra E. Todd
Abstract: This paper considers the interpretation of "Mincer rates of return." We test and reject the Mincer model. It fails to track the time series of true returns. We show how repeated cross section and panel data improves the ability of analysts to estimate the ex ante and ex post marginal rate of returns. Accounting for sequential revelation of information calls into question the validity of the internal rate of return as a tool for policy analysis. The large estimated psychic costs of schooling found in recent work helps to explain why persons do not attend school even though the financial rewards for doing so are high. We present methods for computing distributions of ex post and ex ante returns.
Keywords: No keywords provided
JEL Codes: C31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mincer model assumptions about linearity in log earnings equations (C51) | empirical data support (C81) |
| Mincer model assumptions about parallelism of log earning-experience profiles (C51) | empirical data support (C81) |
| Psychic costs and sequential information revelation (D83) | estimated rates of return (G12) |
| Traditional measures of returns to education (I26) | estimated marginal rates of return (I26) |
| Internal rate of return is not a valid guide for evaluating schooling investments (I26) | uncertainties and option values associated with educational decisions (D89) |