Quality-Consistent Estimates of International Returns to Skill

40 Pages Posted: 20 Nov 2006 Last revised: 10 Aug 2010

See all articles by Eric A. Hanushek

Eric A. Hanushek

Stanford University - Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Lei Zhang

Antai College of Economics and Management, Shanghai Jiao Tong University

Date Written: November 2006

Abstract

Returns to education are traditionally estimated in a Mincer wage equation from the variation in schooling for a cross-section of individuals of different ages. Because individuals receive education at different time periods, when the quality of their education may not be identical, this method leads to an over- or under-estimation of the return to education of a given quality depending on how education quality evolves over time. This quality issue interacts with ability bias from self-selection into schooling and is particularly problematic when comparing returns across different countries. Using microdata from the International Adult Literacy Survey, we construct quality adjusted measures of schooling attained at different time periods and use these along with international literacy test information to estimate returns to skills for 13 countries. Estimated returns to quality-adjusted education are considerably higher than the traditional estimate for most countries, but these are offset to varying degrees by selection biases on ability. The combined corrections alter significantly the pattern of returns to schooling and skill seen from naive Mincer wage equations.

Suggested Citation

Hanushek, Eric A. and Zhang, Lei, Quality-Consistent Estimates of International Returns to Skill (November 2006). NBER Working Paper No. w12664. Available at SSRN: https://ssrn.com/abstract=941971

Eric A. Hanushek (Contact Author)

Stanford University - Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States
650-736-0942 (Phone)
650-723-1687 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Lei Zhang

Antai College of Economics and Management, Shanghai Jiao Tong University ( email )

HOME PAGE: http://sites.google.com/site/zlei89/

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