Working Paper: NBER ID: w13780
Authors: James J. Heckman; Lance J. Lochner; Petra E. Todd
Abstract: The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for different schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.
Keywords: Earnings functions; Rates of return; Education; Human capital
JEL Codes: C31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Schooling (I21) | Earnings (J31) |
| High School Completion (I21) | Internal Rates of Return (E43) |
| Mincer Model Assumptions (C51) | Underestimation of Returns (G17) |
| College Completion (I23) | Internal Rates of Return (E43) |
| Returns to College Completion (I26) | Tuition and Taxes (H29) |
| Returns to College Completion (Black Males) (I26) | Increased Returns in the 1980s (E65) |
| Returns to College Completion (White Males) (I26) | Variable Patterns (C29) |
| Cross-Sectional Analyses (C21) | Observed Trends in Returns to Education (I26) |
| Cohort Analyses (C41) | Observed Trends in Returns to Education (I26) |