Earnings Premium Research Articles

Studying and Working: Your Student Job Affects Your Future Labor Market Outcomes

Does student employment pay off in the labor market after college? Does the type of student job matter? We use administrative data to describe the amount and type of student work for twenty cohorts of students in higher education in Denmark. We find large differences in the amount, and especially the type of student jobs, by education level and field of study. We show that both the skill content and the study-relevance of the student job matter for earnings after college. Having an additional year of student work experience in a job requiring a high skill level or a study-relevant job is associated with an earnings premium of around 20-25% one year after exit from higher education. This premium fades out during the first years and stabilizes around 5% after 6-14 years for professional degrees, but remains relatively high and stable over time since exit from higher education for more theoreticallyoriented university degrees and for dropouts. This suggests a strong and persistent complementarity between the skills students learn in theoretical university courses and high-skill student jobs.

Earnings Premium from Education in the Context of Educational Expansion

Education can be seen as an investment that brings higher incomes to individuals. People with higher levels of education collect important earnings premium in the labour market. On the other hand, the expansion of education is a major trend that characterizes evolution of societies, with important positive effects at the level of social and economic development. This paper aims to explore the influence of educational attainment on subjective incomes of individuals, while taking into account other relevant personal factors, as well as the phenomenon of education expansion at national level. We build our analysis on data from the World Values Survey Wave 7 (Haerpfer et al., 2020) collected from individuals around the world in various national settings. Our results are useful for better understand the influences of increasing participation to education on the earnings structure at both individual and national levels.

New Evidence on Teacher Pay

Prior research has shown that teachers receive lower pay compared to people with the same educational level who work in other occupations. This article challenges that literature and shows that by applying novel statistical approaches, the pay differentials are reduced, and even become pay premiums. In particular, these approaches provide unifying estimates that turn an earnings penalty between female teachers and non-teachers of approximately 10%—based on a standard approach in the literature—into an earnings premium of 5 to 10%. Likewise, estimates based on these approaches erase up to two-thirds of the earnings gap between male teachers and non-teachers. Moreover, going beyond the traditional focus on the mean, the author decomposes the pay gap across the entire earnings distribution. Estimates show that although teachers have a substantial earnings premium at the bottom of the distribution, they have a large earnings penalty at the top.

Starting and Subsequent Earnings of Young Workers in Different Sized Firms

Based upon the highly innovative Project TALENT Longitudinal Database, this study tracks the starting earnings and subsequent early earnings growth of young males who began their work careers at either a smaller (<100 employees) or larger private firm more than a generation ago. Prior evidence based upon less rich databases found that earnings were systematically higher in larger firms but did not have access to many other variables that could affect projected earnings which are available in the TALENT database. Earnings regressions are estimated here including not only usual explanatory variables of years of schooling and labor market experience, but also adding other variables pertaining to prior job experience, military service, IQ, socioeconomic background and some other factors. The findings indicate that while starting earnings of those in this database were indeed higher in larger firms, the gap evaporated fairly quickly with projected earnings of those in smaller firms featuring a small earnings premium. The results here suggest guidance based upon the body of prior evidence may have been less reliable than thought, and that evidence itself may not provide as useful a baseline as desired for subsequent research addressing whether this pattern continues for recent cohorts.

Sexual orientation and earnings: a meta-analysis 2012–2020

This meta-analysis utilizes 24 papers published between 2012 and 2020 that focus on earnings differences by sexual orientation. The papers cover the period between 1991 and 2018, and countries in Europe, North America, and Australia. The meta-analysis indicates that gay men earned less than heterosexual men. Lesbian women earned more than heterosexual women, while bisexual men earned less than heterosexual men. Bisexual women earned less than heterosexual women. According to the meta-analysis, in data sets after 2010, gay men and bisexual men and women continue to experience earnings penalties, while lesbian women continue to experience earnings premiums. The persistence of earnings penalties for gay men and bisexual men and women in the face of anti-discrimination policies represents a cause for concern and indicates the need for comprehensive legislation and workplace guidelines to guarantee that people receive fair pay and not experience any form of workplace inequality simply because of their sexual orientation.

Earnings gap between men and women in the informal labor market in Cameroon

AbstractThis paper investigates the extent of gender earnings gap among informal labor market workers in Cameroon. We have used the 2010 employment and informal sector survey, the Heckman two‐step bivariate selection model, and the Neuman–Oaxaca–Ransom decomposition framework to address these concerns. We find that, compared to men, women are more likely to make the joint decision of participating in the labor market and choosing informal work. Findings also reveal that among informal workers, male workers have an earnings premium over their female counterparts. Returns to informal labor market experience are solidly consistent in narrowing the gender earnings gap. Among the self‐employed workers, male workers also enjoy an earnings premium. However, when the inverse Mills ratio is decomposed, the overall and the self‐employed gender discrimination virtually disappears. Meanwhile, female wage earners enjoy a wage premium and have an unambiguous education‐based advantage over their male counterparts. The implications of these findings support the wisdom that promoting the human capital development of the girl child would play a vital role in alleviating gender‐based differentials by eroding sociocultural conventions and advancing women's agency.

Over-education and immigrant earnings: a penalized quantile panel regression analysis

ABSTRACT Despite evidence that immigrants experience a higher incidence of over-education, relatively few studies have considered the labour market outcomes of over-education for immigrants. Using longitudinal data and penalized quantile panel regression, we inspect the earnings effects of job mismatches for immigrants in Australia. This first application of the method to this question addresses both individual and distributional heterogeneity. Results confirm divergent effects across the earnings distribution. Immigrants from non-English speaking countries experience lower earnings returns and a substantial earnings penalty of up to 25% from educational mismatched employment. However, in contrast to conventional findings of a penalty based on regression at the mean, at the highest earnings quantile, both Australian-born and immigrants from non-English speaking countries with a host country qualification receive earnings premiums of 2.7 and 11%, respectively, from years of over-education. We discuss the policy implications of this new result.

Do local union strategies explain the (unexpected) union pay premium in China?

PurposeThe authors investigate the extent to which differences in provincial union legislation have impacts on the union earnings premium.Design/methodology/approachContent analysis of provincial union regulations of 25 provinces is conducted to create two indices: one reflecting the degree of stringency of the local requirement that unions be established in a timely fashion and the other reflecting requirements for employers to negotiate wages with the union. The authors use individual level data from the China Family Panel Studies (CFPS) of 2010 to estimate the union earnings premium.FindingsThe authors find that unionised workers in China receive an earnings premium ranging from 6.4 to 9.6%, which is in range of other studies (but not all) for China that tend to find a (perhaps surprising) union wage premium in spite of the fact that unions tend to be “company unions” designed to foster stability and growth and to serve as a transmission belt for the wishes of the Party rather than bargaining for the benefit of their members. The authors also find that provincial requirements to establish unions in a timely fashion enhance the impact of unions on the earnings of their members, but provincial requirements to negotiate wages dampen the effect of unions on the earnings of their members. Reasons for these results are discussed.Originality/valueDespite this lack of independence of the Chinese unions, research continuously finds that Chinese unions have effects that are surprisingly similar to those of unions in Western countries. This paper drills deeper into the underlying mechanisms to see if local union strategies, exemplified by provincial union legislation, can explain the unexpected union effects on compensation. To the authors’ knowledge, this is the first paper to do so. Moreover, the authors use individual-level data in contrast to most studies on China that use firm or provincial level aggregate data.

Over-Education and Immigrant Earnings: A Penalized Quantile Panel Regression Analysis

Despite evidence that immigrants experience a higher incidence of over-education, relatively few studies have considered the labour market outcomes of over-education for immigrants. Using longitudinal data and penalized quantile panel regression, we inspect the earnings effects of job mismatches for immigrants in Australia. This first application of the method to this question addresses both individual and distributional heterogeneity. Results confirm divergent effects across the earnings distribution. Immigrants from non-English speaking countries experience lower earnings returns and a substantial earnings penalty of up to 25 percent from educational mismatched employment. However, in contrast to conventional findings of a penalty based on regression at the mean, at the highest earnings quantile, both Australian-born and immigrants from non-English speaking countries with a host country qualification receive earnings premiums of 2.7 and 11 percent, respectively, from years of over-education. We discuss the policy implications of this new result.

Earnings Information and Public Preferences for University Tuition: Evidence from Representative Experiments

Higher education finance depends on the public's preferences for charging tuition, which may be partly based on beliefs about the university earnings premium. To test whether public support for tuition depends on earnings information, we devise survey experiments in representative samples of the German electorate (N>15,000). The electorate is divided, with a plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. We subject the baseline result to various experimental tests of replicability, robustness, heterogeneity, and consequentiality.

Sexual Orientation and Earnings. A Meta-Analysis 2012-2020

This meta-analysis utilizes 24 papers published between 2012-2020 that focus on earnings differences by sexual orientation. The papers cover the period between 1991 and 2018, and countries in Europe, North America and Australia. The meta-analysis indicates that gay men earned less than heterosexual men. Lesbian women earned more than heterosexual women, while bisexual men earned less than heterosexual men. Bisexual women earned less than heterosexual women. According to the meta-analysis, in data sets after 2010, gay men and bisexual men and women continue to experience earnings penalties, while lesbian women continue to experience earnings premiums. Τhe meta-regression estimates indicate relationships between study characteristics and the estimated earnings effects for sexual minorities. For instance, regions, sexual minority data set sizes, and earnings classifications influence the outcomes. The persistence of earnings penalties for gay men and bisexual men and women in the face of anti-discrimination policies represents a cause for concern and indicates the need for comprehensive legislation and workplace guidelines to guarantee that people receive fair pay and not experience any form of workplace inequality simply because of their sexual orientation.

(MIS)Allocation Effects of an Overpaid Public Sector

Abstract There is a large body of evidence showing that for many countries the structure of wages and pensions and the labor law legislation are different for public and private employees. Such differences affect the occupational choice of agents and might generate some type of misallocation. We develop a life-cycle model with endogenous occupational choice and heterogeneous agents to study the implications of an overpaid public sector. The model is estimated to be consistent with micro and macro evidence for Brazil, a country with a high public sector earnings premium. Our counterfactual exercises demonstrate that public–private earnings premium can generate important allocation effects and sizeable productivity losses. For instance, a reform that would decrease the public–private wage premium from its benchmark value of $19\%$ to $15\%$ and would align the pension of public sector workers with the one in place for private sector workers could increase aggregate output by nearly $11.2\%$ in the long run without any decrease in the supply of public infrastructure. We provide a decomposition of the aggregate effect into changes in factors accumulation and changes in TFP and implement a welfare distributive analysis.

For Love and Money? Earnings and Marriage Among Same-Sex Couples

We investigate the earnings effects of marriage among same-sex couples in the United States. Gays and lesbians in the United States have only recently been allowed to enter into legally recognized marriages. As such, we know little about the impact of same-sex marriage on the economic lives of gays and lesbians. We use data from the 2013 to 2017 American Community Survey to show that married gay men experience a 3% marriage earnings premium and lesbian women experience a 6% marriage earnings premium relative to their unmarried cohabiting counterparts. The marriage premium for gay men is smaller than that of heterosexual married men, but the lesbian marriage premium is similar in size to the premium for heterosexual women. In both cases, we show that the marriage premium is larger relative to single gay men and lesbian women in the 2013 to 2017 National Health Interview Surveys. We also find that the marriage premium is more than two times larger among individuals who earn more than their partners, and marriage increases intrahousehold differences in labor market outcomes. This pattern is consistent with a common explanation of the earnings premium experienced by heterosexual men and women: marriage increases investments in relationships that affect patterns of household specialization. Therefore, our results suggest that the effect of marriage on how households organize their time is general and not unique to different-sex households.

Labor market returns to college major specificity

This paper develops a new approach to measuring human capital specificity, in the context of college majors, and estimates its labor market return over a worker’s life cycle. To measure specificity, we propose a novel method grounded in human capital theory: a Gini coefficient of earnings premia for a major across occupations. Our measure captures the notion of skill transferability across jobs. Education and nursing are the most specific majors, while philosophy and psychology are among the most general. Using data from the American Community Survey, we find that the most specific majors typically pay off the most, with an early-career earnings premium of about 5–6% over average majors (15-20% over the most general majors), driven by higher hourly wages. General majors lag far behind at every age. Despite their earnings advantage, graduates from specific majors are the least likely to hold managerial positions, with graduates from majors of average specificity being the most likely to do so. It may be that managerial positions require a mix of specific knowledge and broadly applicable skills.

Gender and Educational Variations in the Earnings Premiums of Occupational Credentials

Abstract Occupational credentials such as professional licenses and certifications are known to generate significant earnings premiums. Based on this, the federal workforce development policy focuses on industry-recognized occupational credentials for less-educated adults to help them obtain family-supporting jobs without having to invest in a postsecondary degree. This study used data from the 2016–2019 Current Population Survey (CPS) outgoing rotation group samples to examine differences in the earnings premiums associated with occupational credentials by gender and education. Our analyses revealed that the earnings premium of job-required credential holding was greater for women than men. For women, estimates of the earnings premiums do not vary much by education level, while for men, those without a Bachelor's degree tend to have high premiums than those without.

The College Admissions Contribution to the Labor Market Beauty Premium

Beautiful people earn more. Surprisingly, this premium is larger for men than for women and is independent of the degree of customer contact. Overlooked is the possibility that beauty can influence college admissions. We explore this academic contributor to the labor market beauty earnings premium by sampling 1,800 social media profiles of students from universities ranked from 1 to 200 in China and the US. Chinese universities use only standardized test scores for admissions. In contrast, US universities use also grades and extracurricular activities, which are not necessarily beauty-blind. Consistent with beauty-blind admissions, student’s beauty is uncorrelated with the rank of their college in China. In the US, White men from higher ranked colleges are better-looking. As expected, the correlation is insignificant for White men who attended tech colleges and is highest for those who attended private colleges. We also find that White women and minorities of either gender are not better-looking at higher ranked colleges. Our evidence indicates a college admissions contribution to the labor market beauty premium for US White men, but not for students in China of either gender, White women, or minorities of either gender in the US, or for White men who attended technology colleges.

Entrepreneurial teams' acquisition of talent: Evidence from technology manufacturing industries using a two‐sided approach

AbstractResearch summaryOne of the established findings in the spinout literature is that founders with prior industry experience assemble larger entrepreneurial teams and create better‐performing startups. We examine the role of prior industry experience in the startups' next stage—its hiring of new employees. We tackle two empirical challenges—the mutual aspect of hiring and the effect of unobserved variables on employees' earnings using a two‐sided matching model. Our results reveal that even firms founded by entrepreneurs without industry experience can attract new employees with such experience if the founders start with a large entrepreneurial team. Further, startups provide new hires with an earnings premium for their industry experience. Our approach illustrates the benefits of matching models over traditional regressions.Managerial summaryGrowing startups face the question of who to hire and how much to compensate the new hires. Simultaneously, prospective new hires ask which startup to join and how much their salary will be. We explore these questions using a novel method that tackles the mutual selection process. In the context of five technological manufacturing industries, we find that having industry experience within founding teams may not be necessary to attract new hires with high quality if the startup can signal its own quality through other means such as having a larger founding team. Our results indicate that startups prefer employees with industry experience for which startups offer a wage premium. Thus, employees seeking startup employment benefit from gaining industry experience prior to joining a startup.A video abstract is available at https://youtu.be/w00YzYi5VqA.

Problem on the Plains: College Earnings Premiums in Small Metropolitan Areas

I use the American Community Survey to examine how college earnings premiums differ across small metropolitan statistical areas (MSAs) in the U.S. I document that the West North Central Division (Plains Region) has especially low average college earnings premiums. Controlling for observable MSA characteristics via regression explains some of the difference between the Plains and other regions, but large and important differences remain. The low return to education for small MSAs in the Plains suggests that they will face special challenges building and retaining human capital in the near future. These areas may especially struggle to attract college-educated in-migrants.

Appraising Commercial Expenditure Efficiency of General Medical Education and Residency Programmes in Nigeria

Purpose: The purpose of the research is to establish the standard period taken in full recovery of cost outlays, rate of returns for general physicians and marginal returns to consultants, and appropriate profitability indices. Mixed ex-post “facto” data and primary data-sets pertaining medical education expenditure across levels and lifecycle career earnings of Nigerian physicians in public service were employed. The longitudinal secondary and primary data-set were obtained from cohorts of physicians that participated in the two stages of medical education, published programmes charges posted in brochures of some public universities’ medical schools and gazette consolidated medical salaries scheme of scale for medical workers in the public service. Method of Analysis: Break-even analysis was applied to determine minimum number of years required to fully invested capital; “elaborate (full cash flows) discounting” with internal rate of return method was used for calculation of the private and marginal rate of returns. Then, profitability ratio approach was applied to determine the level of viability of medical education across levels. Cost construction indicates that about N30 million and N69.5 million are committed as investments on general medical education and residency training of the licensed general physicians and consultant-physicians respectively. The lifecycle career earnings estimates of the general practice physicians and consultant-physicians employed in the public service worth N356 million and 814 million. Results: The break-even period for full recovery of investments in general practice physicians is 5.25 around the thirteenth years of medical education and 6.33 years for residency-trained consultants, occurring in the 21st period of this layer of vocational training respectively. Individual rate of returns on investments in general medical education of average licensed general physicians is 32 percent and 32 percent marginal rate of returns to additional investment expenditures on residency training (earnings premium of consultant-physicians). This combined rate of returns of consultant-doctors (general medicine plus residency training) is 64 percent. Net present value of cash-flows of the average general physician and consultant-doctors in Nigeria is worth N326 million and N744 million respectively. Whilst the profitability index derived from the present value of net cash-flows is 1.32 for general physicians and 1.69 for the specialist. Conclusion: The paper concludes that investments to medical education in Nigeria are worth-while; but more rewarding for residency training. Timing of education (age-range when doctors get certified) influences the earnings and rate returns to investments and value of one’s intellectual capital and net-worth (statistical financial value of life). Contribution to Knowledge: The results of assessment of individual’s expenditure efficiency in medical/higher education confirm that investment in medical education is worthwhile. The findings enhance rational decision for individuals, private sector and government organizations respectively and veritable information for policy formulation. Originality: This research is an exploratory assessment of individual participants’ spending efficiency in medical education in Nigeria and other developing country establishes tentative pay-back period of such investments, unit rates of returns across levels and profitability indices.

The Relationship Between Work During College and Post College Earnings.

Prior research suggests that undergraduates employed during term time are less likely to graduate. Using transcript data from a large multi-campus university in the United States, combined with student earnings data from state administrative records, the authors find that traditional-age students who worked for pay during college on average earned more after leaving college than similar students who did not work. This post-college earnings premium is on par with the benefit from completing a degree, even after controlling for demographic and academic achievement characteristics, across various student sub-groups, and including models that account for selection bias. Implications of these findings for theories of education and social stratification, and for educational policy are considered.