Dispersion in the Economic Return to Schooling

13 Pages Posted: 20 Nov 2001

See all articles by Colm P. Harmon

Colm P. Harmon

The University of Sydney - School of Economics; IZA Institute of Labor Economics

Vincent Hogan

National University of Ireland - University College Dublin; University of Warwick

Ian Walker

University of Warwick - Department of Economics; Institute for Fiscal Studies (IFS); IZA Institute of Labor Economics

Date Written: November 2001

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: Return to schooling, random coefficients

JEL Classification: C31, J24, J31

Suggested Citation

Harmon, Colm P. and Hogan, Vincent and Walker, Ian, Dispersion in the Economic Return to Schooling (November 2001). CEPR Discussion Paper No. 3037. Available at SSRN: https://ssrn.com/abstract=291519

Colm P. Harmon (Contact Author)

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Vincent Hogan

National University of Ireland - University College Dublin ( email )

Dublin 4
Ireland
+353 1 716 8300 (Phone)
+353 1 283 0068 (Fax)

University of Warwick

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Ian Walker

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 1203 523 054 (Phone)
+44 1203 523 032 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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