Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-55f67697df-zh294 Total loading time: 0 Render date: 2025-05-08T21:58:01.487Z Has data issue: false hasContentIssue false

2 - The social returns to education

Published online by Cambridge University Press:  22 September 2009

By
Mikael Lindahl  and
Erik Canton
Edited by
Joop Hartog  and
Henriëtte Maassen van den Brink
Mikael Lindahl
Affiliation:
Assistant Professor in Economics Swedish Institute for Social Research (SOFI) Stockholm University
Joop Hartog
Affiliation:
Universiteit van Amsterdam
Henriëtte Maassen van den Brink
Affiliation:
Universiteit van Amsterdam
Get access

Summary

Introduction

The most frequently estimated relationship in labour economics is the one between wages and education using micro data on working individuals. The general finding is that an additional year of education increases wages by 5–15%. The figure is at the lower end for egalitarian countries such as the Netherlands and Sweden and at the upper end for many developing countries. The general consensus is that such an interval estimate quite well resembles the causal effect of education on wages, i.e. the private return to education (cf. chapter 1).

Is the estimated private return averaged over individuals a good indicator of the social return to education? Two conditions need to be fulfilled. First, the estimated private wage return needs to be equal to the effect of education on productivity. This is not the case if, for instance, institutions compress the wage structure or if education is just a signal of ability to employers. Second, there should be no (non-internalized) externalities to education. Education externalities exist if the education level of others affects the productivity of the individual. We may here differentiate between static externalities, when education has a one-time effect on output (Lucas, 1988), and dynamic externalities, where a higher education level makes the economy grow faster, perhaps because more human capital increases the number of innovations (Romer, 1990), or makes it easier to imitate technologies developed by others (Nelson and Phelps, 1966). There are also effects of education on outcomes other than productivity.

Type
Chapter
Information
Human Capital
Advances in Theory and Evidence
 , pp. 21 - 37
Publisher: Cambridge University Press
Print publication year: 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Acemoglu, D. and Angrist, J. (2001). How Large Are Social Returns to Education? Evidence from Compulsory Schooling Laws. NBER Macroeconomics Annual 2000. Cambridge, MA: MIT Press.Google Scholar
Aghion, P. and Howitt, P. (1998). Endogenous Growth Theory. Cambridge, MA: MIT Press.Google Scholar
Barro, R. J. (1991). Economic growth in a cross-section of countries. Quarterly Journal of Economics, 106 (2): 407–43.CrossRefGoogle Scholar
Barro, R. J. and Lee, J. W. (1993). International comparisons of educational attainment. Journal of Monetary Economics, 32 (3): 363–94.CrossRefGoogle Scholar
Barro, R. J. and Lee, J. W.(1996). International measures of schooling years and schooling quality. American Economic Review Papers and Proceedings, 86 (2): 218–23.Google Scholar
Barro, R. J. and Lee, J. W.(2001). International data on educational attainment: updates and implications. Oxford Economic Papers, 53 (3): 541–63.CrossRefGoogle Scholar
Barro, R. J. and Sala-i-Martin, X. (1995). Economic Growth. Cambridge, MA: MIT Press.Google Scholar
Becker, G. S. (1964). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. New York: NBER.Google Scholar
Benhabib, J. and Spiegel, M. M. (1994). The role of human capital in economic development: evidence from aggregate cross-country data. Journal of Monetary Economics, 34 (2): 143–73.CrossRefGoogle Scholar
Bils, M. and Klenow, P. J. (2000). Does schooling cause growth? American Economic Review, 90 (5): 1160–83.CrossRefGoogle Scholar
Ciccone, A. and Peri, G. (2006). Identifying human capital externalities: theory with applications. Review of Economic Studies, 73 (2): 381–412.CrossRefGoogle Scholar
Cohen, D. and M. Soto (2001). Growth and human capital: good data, good results. CEPR Discussion Paper 3025, London.CrossRef
Fuente, A. and Ciccone, A. (2003). Human Capital in a Global and Knowledge-Based Economy. Brussels: European Commission.Google Scholar
Fuente, A. and Doménech, R. (2006). Human capital in growth regressions: how much difference does data quality make? Journal of the European Economic Association, 4 (1): 1–36.CrossRefGoogle Scholar
Heckman, J. J. and Klenow, P. J. (1998). Human capital policy, in Boskin, M. (ed.), Policies to Promote Human Capital Formation. Hoover Institution, Stanford University.CrossRefGoogle Scholar
Krueger, A. B. and Lindahl, M. (2001). Education for growth: why and for whom? Journal of Economic Literature, 39 (4): 1101–36.CrossRefGoogle Scholar
Kyriacou, G. (1991). Level and growth effects of human capital: a cross-country study of the convergence hypothesis. C. V. Starr Center for Applied Economics Working Paper 91–26, New York University.
Levine, R. and Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82 (4): 942–63.Google Scholar
Lleras-Muney, A. (2005). The relationship between education and adult mortality in the United States. Review of Economic Studies, 72 (1): 189–221.CrossRefGoogle Scholar
Lochner, L. and Moretti, E. (2004). The effect of education on crime: evidence from prison inmates, arrests and self-reports. American Economic Review, 94 (1): 155–89.CrossRefGoogle Scholar
Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22 (1): 3–42.CrossRefGoogle Scholar
Lucas, R. E.(1990). Why doesn’t capital flow from rich to poor countries? American Economic Review Papers and Proceedings, 80 (2): 92–6.Google Scholar
Mankiw, N. G., Romer, D. and Weil, D. N. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107 (2): 407–37.CrossRefGoogle Scholar
Milligan, K., Moretti, E. and Oreopoulos, P. (2004). Does education improve citizenship? Evidence from the United States and the United Kingdom. Journal of Public Economics, 88 (9–10): 1667–95.CrossRefGoogle Scholar
Moretti, E. (2004). Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data. Journal of Econometrics, 121 (1–2): 175–212.CrossRefGoogle Scholar
Nehru, V., Swanson, E. and Dubey, A. (1995). A new data base on human capital stock in developing and industrial countries: sources, methodology and results. Journal of Development Economics, 46 (2): 379–401.CrossRefGoogle Scholar
Nelson, R. and Phelps, E. (1966). Investment in humans, technological diffusion, and economic growth. American Economic Review, 56 (1–2): 69–75.Google Scholar
Portela, M., R. Alessie and C. Teulings (2004). Measurement error in education and growth regressions. Tinbergen Discussion Paper 04–040/3, Amsterdam.
Pritchett, L. (2001). Where has all the education gone? World Bank Economic Review, 15 (3): 367–91.CrossRefGoogle Scholar
Pritchett, L.(2006). Estimating the aggregate returns to education, in Hanushek, E. and Welch, F. (eds.), Handbook of the Economics of Education. Amsterdam: North-Holland.Google Scholar
Rauch, J. (1993). Productivity gains from geographic concentration of human capital: evidence from cities. Journal of Urban Economics, 34 (3): 380–400.CrossRefGoogle Scholar
Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98 (5): S71–S102.CrossRefGoogle Scholar
Schultz, T. W. (1961). Investment in human capital. American Economic Review, 51 (1): 1–17.Google Scholar
Sianesi, B. and Reenen, J. (2003). The returns to education: macroeconomics. Journal of Economic Surveys, 17 (5): 157–200.CrossRefGoogle Scholar
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70 (1): 65–94.CrossRefGoogle Scholar
Teulings, C. and T. van Rens (2003). Education, growth and income inequality. CEPR Discussion Paper 3863, London.
Topel, R. (1999). Labor markets and economic growth, in Ashenfelter, O. and Card, D. (eds.), Handbook of Labor Economics. Handbooks in Economics, vol. V. Amsterdam: North-Holland.Google Scholar
Vandenbussche, J., P. Aghion and C. Meghir (2005). Growth, distance to frontier and composition of human capital. CEPR Discussion Paper 4860, London.

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×