The Returns to Education: Microeconomics

41 Pages Posted: 30 Jun 2003

See all articles by Colm P. Harmon

Colm P. Harmon

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

Hessel Oosterbeek

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Tinbergen Institute Amsterdam (TIA); Institute for the Study of Labor (IZA)

Ian Walker

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

Abstract

In this paper we focus on education as a private decision to invest in "human capital" and the estimation of the rate of return to that private investment. While the literature is replete with studies that estimate the rate of return using regression methods where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics, the issue is surrounded with difficulties. We outline the theoretical arguments underpinning the empirical developments and show that the evidence on private returns to the individual is compelling. Despite some of these issues surrounding the estimation of the return to schooling, our evidence, based on estimates from a variety of datasets and specifications, is that there is an unambiguously positive effect on the earnings of an individual from participation in education. Moreover, the size of the effect seems large relative to the returns on other investments.

Suggested Citation

Harmon, Colm P. and Oosterbeek, Hessel and Walker, Ian, The Returns to Education: Microeconomics. Journal of Economic Surveys, Vol. 17, pp. 115-156, April 2003. Available at SSRN: https://ssrn.com/abstract=416648

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

Hessel Oosterbeek

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

Roetersstraat 11
Amsterdam
Netherlands
+31 20 525 4242 (Phone)
+31 20 525 5283 (Fax)

HOME PAGE: http://www.fee.uva.nl/scholar/oosterbeek/

Tinbergen Institute Amsterdam (TIA)

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Institute for the Study of Labor (IZA)

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

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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