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Measuring heterogeneity in the returns to education in Norway using educational reforms

Aakvik, Arild; Vaage, Kjell; Salvanes, Kjell Gunnar
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URI
http://hdl.handle.net/11250/162894
Date
2003-07
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  • Discussion papers (SAM) [604]
Abstract
The decision to take more education is complex, and is influenced by individual

ability, financial constraints, family background, preferences, etc. Such factors,

normally unobserved by the researcher, introduce endogeneity and heterogeneity

problems into estimating the returns to education. In this paper, these problems

are addressed by estimating a comparative advantage model for schooling, in

which the returns to education vary at different levels of education. The model

requires that instruments must be specified at each level of education, and we

suggest that different school reforms in Norway can serve as suitable instruments.

In particular, we exploit the staged implementation of a major reform in the

comprehensive school system in the 1960s. We find that the returns to education

are strongly nonlinear. In particular, we find that the returns to upper secondary

school and shorter programs at regional colleges, together with master’s programs

at universities, have high returns as measured by wages. Also, we find that the

average treatment effect is surprisingly high for medium-length educations (up

to two years of college education). This means that increasing the general level

of education, which was the intention of the comprehensive school reform of the

1960s and of other school reforms, has the potential to generate a high return in

wages, although we do not consider the cost to society. We also find that there

is a substantial difference between the average treatment effect and the effect of

treatment on the treated for bachelor’s and master’s degrees at universities.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2002:26

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