How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws
Average schooling in US states is highly correlated with state wage levels, even after controlling for the direct effect of schooling on individual wages. We use an instrumental variables strategy to determine whether this relationship is driven by social returns to education. The instrumentals for average schooling are derived from information on the child labor laws and compulsory attendance laws that affected men in our Census samples, while quarter of birth is used as an instrument for individual schooling. This results in precisely estimated private returns to education of about seven percent, and small social returns, typically less than one percent, that are not significantly different from zero.
How Large Are Human-Capital Externalities? Evidence from Compulsory Schooling Laws, Daron Acemoglu, Joshua Angrist. in NBER Macroeconomics Annual 2000, Volume 15, Bernanke and Rogoff. 2001