The returns to education: microeconomics

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...

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Bibliographic Details
Published in:Journal of economic surveys 2003-04, Vol.17 (2), p.115-156
Main Authors: Harmon, Colm, Oosterbeek, Hessel, Walker, Ian
Format: Article
Language:English
Subjects:
Bildungsertrag
Economics
Endogeneity
Estimation
Europa
Human capital
Methodology
Microeconomics
Research methods
Returns to education
Schätzung
Signalling
Surveys
Theorie
Ökonomie
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Summary: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.
ISSN:0950-0804
1467-6419
DOI:10.1111/1467-6419.00191