Evaluating the effect of education on earnings: Models, methods and results from the national child development survey

Abstract

Regression, matching, control function and instrumental variables methods for recovering the effect of education on individual earnings are reviewed for single treatments and sequential multiple treatments with and without heterogeneous returns. The sensitivity of the estimates once applied to a common data set is then explored. We show the importance of correcting for detailed test score and family background differences and of allowing for (observable) heterogeneity in returns. We find an average return of 27% for those completing higher education versus anything less. Compared with stopping at 16 years of age without qualifications, we find an average return to O-levels of 18%, to A-levels of 24% and to higher education of 48%. © 2005 Royal Statistical Society.