Discussion Paper Details

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Title: Dispersion in the Economic Return to Schooling

Author(s): Colm Harmon, Vincent Hogan and Ian Walker

Publication Date: November 2001

Keyword(s): random coefficients and return to schooling

Programme Area(s): Labour Economics and Public Economics

Abstract: In this Paper we extend the standard human capital earnings function to include dispersion in the rate of return to schooling by treating the return as a random coefficient. One motivation is that if dipping further into the ability distribution has brought about the increase in supply of skilled workers. Alternatively if the expansion in post-compulsory education comes about through relaxed credit constraints then we might expect this to increase average ability in the pool of educated workers. Either event might lead to a rise in the variance in returns. Based on a sample of data from the United Kingdom our estimates suggest that neither the mean nor the dispersion in returns to schooling has altered significantly over time. This is consistent with educational expansion not leading to a disproportionate inflow of low ability individuals into the system.

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Bibliographic Reference

Harmon, C, Hogan, V and Walker, I. 2001. 'Dispersion in the Economic Return to Schooling'. London, Centre for Economic Policy Research.