Abstract
We extract estimation results on the Mincer earnings function from four earlier studies and add new results from a recent dataset. We check for differences related to differences in earnings concepts and in sampling frame, to reduce bias in intertemporal comparison. Jointly, the studies show a clear U-shaped development in the rate of return to education from 1962 to 2012, with a bottom in the 1980s. We explain this from Tinbergens’s race between suppy and demand (schooling and technology) and suggest this may be a widespread international pattern. Returns to potential experience show no marked time trend. The paper has been presented at the CPB-OCW Workshop “Returns to education: research and policy”, The Hague, December 17 2015. We are grateful to Bas ter Weel and Harry Patrinos for comments on an earlier version and to Wiljan van den Berge and Dinand Webbink for providing us with their data. We also thank two anonymous referees for useful suggestions.
Highlights
Ln W is the logarithm of an employee’s wage rate per time unit, S is years of schooling, X is years of work experience and ε is a residual for all other variables; some of these other variables may be explicitly specified
OLS estimates cannot be taken as measures of causal effects, essentially because benefits can only be inferred from individuals who differ in the amount of schooling they have chosen
Without the frame of human capital theory, the equation measures the effect of an extra year of schooling and the average effect of additional experience, from observations on inidividuals that differ in years of schooling and experience
Summary
Estimates of rates of return on data from different sources, with different definitions and different sampling frames, cannot be combined at face value in a single time series. Comparing results from OSA data and CBS Wage Structure Survey data, both for 1996, both on gross hourly wages, both from datasets meant to be nationally representative, exposes a gap in estimated returns of +1.4 points for men and −0.6 points for women. The profiles are flatter for net earnings as compared to gross earnings (OSA 1982, 1988 and 1996), which again, given income tax rate progression, comes as no surprise, but the effect is mostly modest. Profiles for women are mostly flatter than for men before 1999, and mostly steeper after 1999 (in the GH study) This may be a composition effect on hours worked, as in the GH study women’s profiles are flatter than men’s if only full-time workers are compared. The linear terms are 0.081 versus 0.052, for women 0.078 versus 0.041
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