Working Paper: NBER ID: w25885
Authors: Gaurab Aryal; Manudeep Bhuller; Fabian Lange
Abstract: This paper considers the use of instruments to identify and estimate private and social returns to education within a model of employer learning. What an instrument identifies depends on whether it is hidden from, or transparent (i.e., observed) to, the employers. A hidden instrument identifies private returns to education, and a transparent instrument identifies social returns to education. We use variation in compulsory schooling laws across non-central and central municipalities in Norway to construct hidden and transparent instruments. We estimate a private return of 7.9%, of which 70% is due to increased productivity and the remaining 30% is due to signaling.
Keywords: Education; Employer Learning; Signaling; Instrumental Variables
JEL Codes: J01; J24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hidden instrument (Y20) | private returns to education (I26) |
| transparent instrument (Y20) | social returns to education (I26) |
| education (I29) | internal rate of return to an additional year of education (I26) |
| initial signal (Y20) | employer learning (M51) |
| education (I29) | wages (J31) |