Does Education Raise Productivity, or Just Reflect it?

19 Pages Posted: 25 Oct 2004

See all articles by Arnaud Chevalier

Arnaud Chevalier

University College Dublin (UCD) - Institute for the Study of Social Change; IZA Institute of Labor Economics

Colm P. Harmon

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

Ian Walker

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

Yu Zhu

University of Kent, Canterbury, Kent Business School, Students

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Abstract

Education has an important effect on wages but is not clear whether this is because education raises productivity or because education is simply a signal of ability. We implement a number of existing tests for discriminating between these two explanations and find that they do not support the signalling hypothesis. However, we have severe reservations about these results and we propose an alternative test based on changes in education incentives caused by changes in the minimum school leaving age in the 1970s. Using this idea we find that UK data appear to strongly support the human capital explanation.

Suggested Citation

Chevalier, Arnaud and Harmon, Colm P. and Walker, Ian and Zhu, Yu, Does Education Raise Productivity, or Just Reflect it?. Economic Journal Vol. 114, No. 499, pp. F499-F517, November 2004. Available at SSRN: https://ssrn.com/abstract=608449

Arnaud Chevalier (Contact Author)

University College Dublin (UCD) - Institute for the Study of Social Change ( email )

Belfield
Dublin 4
Ireland
+353 1 716 4616 (Phone)
+353 1 716 1108 (Fax)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Colm P. Harmon

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

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

Yu Zhu

University of Kent, Canterbury, Kent Business School, Students ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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