Earnings effects of different components of schooling; human capital versus screening

Abstract

In this paper we divide actual years of schooling into effective years, repeated years, skipped years, inefficient routing years and dropout years. Estimation of earnings functions reveals that this typology is statistically superior to the usual concepts of either actual or effective years of schooling. Based on our distinction we formulate tests which discriminate between the human capital theory and the screening hypothesis. The results give strong support to the human capital theory and refute the screening hypothesis. © 1994.