Discussion Paper Details

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Title: K-Returns to Education

Author(s): Andreas Fagereng, Luigi Guiso, Martin Holm and Luigi Pistaferri

Publication Date: January 2020

Keyword(s): Returns to capital and Returns to education

Programme Area(s): Financial Economics and Labour Economics

Abstract: We exploit a school reform that increased the length of compulsory schooling in Norway in the 1960s to study the causal effect of formal general education on returns on wealth (k-returns). OLS estimates reveal a strong, positive and statistically significant correlation between education and returns on individual net worth. This effect disappears in IV regressions, implying that general education has no causal effect on individual performance in capital markets, whose heterogeneity largely reflects non-acquired ability. On the contrary, we find that education causes higher returns in the labor market (l-returns). We speculate about possible rationales for this important asymmetry.

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Bibliographic Reference

Fagereng, A, Guiso, L, Holm, M and Pistaferri, L. 2020. 'K-Returns to Education'. London, Centre for Economic Policy Research.