Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond

199 Pages Posted: 20 Sep 2005 Last revised: 19 Jul 2010

See all articles by James J. Heckman

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)

Lance Lochner

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER)

Petra Todd

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

This paper considers the interpretation of "Mincer rates of return." We test and reject the Mincer model. It fails to track the time series of true returns. We show how repeated cross section and panel data improves the ability of analysts to estimate the ex ante and ex post marginal rate of returns. Accounting for sequential revelation of information calls into question the validity of the internal rate of return as a tool for policy analysis. The large estimated psychic costs of schooling found in recent work helps to explain why persons do not attend school even though the financial rewards for doing so are high. We present methods for computing distributions of ex post and ex ante returns.

Suggested Citation

Heckman, James J. and Lochner, Lance and Todd, Petra, Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond (August 2005). NBER Working Paper No. w11544. Available at SSRN: https://ssrn.com/abstract=779954

James J. Heckman (Contact Author)

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Lance Lochner

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Petra Todd

University of Pennsylvania - Department of Economics ( email )

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