Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 313: Assessing the Effect of Schooling on Earnings Using a Social Experiment

Costas Meghir () and Mårten Palme ()
Additional contact information
Costas Meghir: Department of Economics, Postal: University College London, Gower Street, London WC1E 6BT, United Kingdom
Mårten Palme: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: The implementation of the 1950 Swedish comprehensive school reform was preceded by a unique social experiment. During this experiment between 1949 and 1962 the new school system was implemented in stages. This allows us to study the same cohort of individuals going through two different school systems, one of them implying at least one year of prolonged compulsory schooling, in a very similar environment. We use this exogenous variation in educational outcomes to estimate the average returns to education allowing for heterogeneity in the returns across individuals. We also use an ability measure (IQ scores and grades obtained at age 12 or 13) to allow for heterogenous returns to observed ability.

Keywords: Returns to schooling; education reform; ability bias; selection bias; instrumental variables; random coefficient models

JEL-codes: C31; I21; I28; J24; J31

51 pages, March 25, 1999

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