Essays on the influence of selection and school quality on earnings and educational attainment
Description
From a controversial genesis in the 1960s the theory of human capital has acquired a role of critical importance in the economic development of human beings and nations. A major development in the human capital literature initiated by Becker and Chiswick (1966) and carried to full fruition by Mincer (1974) was the development of a simple empirical framework which captured the key ingredients of the human capital model. Although ingenious and practical, Mincer's formulation has several shortcomings. Among these are, ignoring self-selection and the endogeneity of schooling and ignoring the role of school quality Notwithstanding these shortcomings, the human capital earnings function has been widely used to estimate rates of return to education. Partly on the basis of high rates of return to education, many developing countries have invested heavily in their education sectors. However, although the vacuum is slowly being filled, the evidence on how rates of return to education have fared subsequent to the growth of the education sector is surprisingly sparse These three issues, that is, the inability of the human capital earnings function to account for the self-selection behavior of individuals, changes in the rate of return to education over time, and the role of school quality in determining earnings, form the focus of this dissertation. While these issues are important for all countries this dissertation analyzes these three issues in the context of Honduras, a poor developing country. The dissertation combines recently collected high quality data household data with data on school quality to create a unique set of data which allows us to explore the three issues raised above in detail Chapter one provides rates of return to education that allow for the endogeneity of schooling attainment. The results reveal that ignoring these effects leads to a substantial understatement of rates of return to schooling. Chapter one section five examines the effect of educational expansion on the rates of return to education. There is an increase in educational returns for men who enter the labor market in the 1980s. This is unexpected due to the massive educational expansion in Honduras, which is expected to reduce the marginal returns to schooling. A number of factors that may explain the higher returns are evaluated. It seems that the emergence of a stable political climate, economic reforms and increases in skill-enhancing labor demand are the most likely explanations Chapter two and chapter three address an apparently straightforward question that has received little attention in developing countries. Does school quality have a significant impact on earnings? Household survey data is combined with unique data on school quality to answer this question. The results display strong effects of school quality on earnings, with the strongest impact occurring at the lower percentiles of the income distribution. These effects persist across a variety of model specifications