The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence

James Heckman, Anne Layne-Farrar, Petra Todd

NBER Working Paper No. 5288
Issued in October 1995
NBER Program(s):   LS

This paper investigates the economic and empirical foundations of the evidence relating earnings to schooling quality. We replicate the Card-Krueger model for Census years 1970, 1980 and 1990 and find that it consistently produces a strong relationship between schooling quality and the rate of return to schooling. We test key identifying assumptions used by Card and Krueger and others. Several assumptions are rejected. When they are relaxed, the evidence for a strong effect of schooling quality on earning is greatly weakened. A crucial identifying assumption is the absence of selective migration on the basis of earnings. Nonparametric tests strongly reject this hypothesis. The conventional assumption of linearity of the earnings- schooling relationship widely used in the literature is also rejected. The only surviving evidence of any schooling quality effect is in the return to college education. We also test and reject conventional efficiency unit models of the pricing of labor services. The empirically concordant model of earnings is a model of heterogeneous human capital in which regional shocks affect the prices of less- skilled labor.

download in pdf format
   (1170 K)

email paper

This paper is available as PDF (1170 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5288

Users who downloaded this paper also downloaded these:
Heckman, Layne-Farrar, and Todd w5274 Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship
Card and Krueger w5450 Labor Market Effects of School Quality: Theory and Evidence
Garber and Svensson w4971 The Operation and Collapse of Fixed Exchange Rate Regimes
Korenman and Neumark w6031 Cohort Crowding and Youth Labor Markets: A Cross-National Analysis
Sachs and Warner w5039 Economic Convergence and Economic Policies
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us