Transcript Dorigatti

How large are returns to
schooling? Hint: money isn't
everything
Philip Oreopoulos and Kjell G. Salvanes
September 2009
[
Returns to education
Economic returns (schooling as a financial investment):
 Private: higher wages (7-12% more), more opportunity for
consumption
 Public*: economic growth
Non economic returns:
 Public*: reduction of threats to security, participation in public
life
 Private: schooling affects lifetime well-being of individuals
(self-reported happiness)
* constitute strong incentives to the public funding of education.
]
After conditioning for income
the relationship does not
disappear.
Schooling affects individual
well-being through many
additional channels other
than through income.
Aim of the paper: to test the theoretical and empirical links
between schooling and non-pecuniary outcomes
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Returns in the labour market
Fringe benefits: pension contributions, paid vacations, stock
options.
More rewarding jobs:
 sense of accomplishment, autonomy and social
interactions (O*NET data)
 occupational prestige
 job satisfaction
 job security (in addition to workers earnings, lead to
depression and low self esteem).
]
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Returns outside the labour market
]
Critical thinking and social skills (strongly and positively correlated with
schooling/causation not clear). Two models:
 Productive efficiency model: skills act as technology shocks
(multitasking).
 Allocative efficiency models: individuals with better skills make
better decisions.
Examples:
 Good health: due to healthy habits and healthy activities. Faster
response to new medical information for those with more schooling
(allocative efficiency hp.).
 Better (and more stable) marriages: schooled people more
appealing in competitive marriage markets, critical thinking and
social skills crucial in managing the marriage (lower divorce rates)
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
Returns outside the labour market II
Higher children development and social-economic success
throughout life (persists also after conditioning on income, therefore
not due only to resources): parenting style differs by school
attainment: determinant for children's cognitive development
]
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Effects on preferences
]
Schooling may change people's preferences (provides information on
new opportunities for consumption or develops patience).
Enhances students' attention to the future: change in time preferences.
Strongly related to the reduction of risky behaviours, such as teen
fertility and crime activity.
[
Effects on preferences II
Schooling fosters trust, which improves social interaction and
community involvement.
 Causal relationship: relative reasons (ones' social status becomes
higher than the other's), additive reasons (teaches people how to
interact successfully), super additive reasons (everyone becomes
more trusting).
]
[
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Negative non-pecuniary returns
Added stress: stress hormones are negatively associated
with schooling and income (higher pressure offset by better
health and social support or access to commodities which
help saving time)
Constraints on time
]
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Schooling as consumption
Schooling normally considered in economic theory as an
opportunity cost (wage a student does not earn while
schooling) or as a psychic cost (effort a student has to
make in order to get education).
But student's life can also be seen as a consumption
good.
 Evidence: students' enrollment decisions (increase in
colleges with better sport equipments and better social
life, controlled for the academic ranking)
]
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Measurement issues
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Heterogeneity: difficult to assess impacts for sub-groups
(problem partly resolved by dividing results by groups).
Schooling versus education: years of schooling are not
particularly good measures of education (limited information on
what it is about schooling that produces pecuniary and non
pecuniary returns). Over-reliance on quantitative- and
qualification-based measures (data readily available), but poor
information on the quality of education.
Signalling skills through schooling: difficult to distinguish, but
seems not so evident in non-pecuniary benefits (especially in
the case of diverse individual attitudes).
[
Measurement issues II
]
Causality: difficult to estimate causal effects (schooling may be
spuriously correlated to particular outcomes). Problem often
resolved in two ways:
1. using syblings and twins with different levels of schooling:
ability and family background are kept constant.
2. using data related to policy changes which affect
schooling attainment (for example minimum schooling
legislation).
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Measurement issues III
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Measurement issues
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Conclusions
Why so much difference in schooling attainment if going to
school is so convenient?
 Financial obstacles
 Students are shortsighted
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