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http://ssrn.com/abstract=225352
 
 

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


James J. Heckman


University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Anne Layne-Farrar


Charles River Associates

Petra Todd


University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

October 1995

NBER Working Paper No. w5288

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.

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Date posted: May 25, 2006  

Suggested Citation

Heckman, James J. and Layne-Farrar, Anne and Todd, Petra, The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence (October 1995). NBER Working Paper No. w5288. Available at SSRN: http://ssrn.com/abstract=225352

Contact Information

James J. Heckman (Contact Author)
University of Chicago - Department of Economics ( email )
1126 East 59th Street
Chicago, IL 60637
United States
773-702-0634 (Phone)
773-702-8490 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
American Bar Foundation
750 N. Lake Shore Drive
Chicago, IL 60611
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Anne Layne-Farrar
Charles River Associates ( email )
1 South Wacker Drive
Suite 3400
Chicago, IL 60606
United States
312-377-9238 (Phone)
HOME PAGE: http://www.crai.com
Petra Todd
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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