The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence / James Heckman, Anne Layne-Farrar, Petra Todd.

Format:

Book

Author/Creator:

Heckman, James.

Contributor:

National Bureau of Economic Research.

Layne-Farrar, Anne.

Todd, Petra.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5288.

NBER working paper series no. w5288

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Schooling Quality-Earnings Relationship

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

This paper investigates the economic and empirical foundations of the evidence relating earnings to schooling quality. We replicate the Card-Krueger model for Census years 1970, 1980 and 1990 and find that it consistently produces a strong relationship between schooling quality and the rate of return to schooling. We test key identifying assumptions used by Card and Krueger and others. Several assumptions are rejected. When they are relaxed, the evidence for a strong effect of schooling quality on earning is greatly weakened. A crucial identifying assumption is the absence of selective migration on the basis of earnings. Nonparametric tests strongly reject this hypothesis. The conventional assumption of linearity of the earnings- schooling relationship widely used in the literature is also rejected. The only surviving evidence of any schooling quality effect is in the return to college education. We also test and reject conventional efficiency unit models of the pricing of labor services. The empirically concordant model of earnings is a model of heterogeneous human capital in which regional shocks affect the prices of less- skilled labor.

Notes:

Print version record

October 1995.