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K-Returns to Education

Andreas Fagereng (), Luigi Guiso (), Martin Holm () and Luigi Pistaferri
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Luigi Pistaferri: Stanford University

No 2002, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We exploit a school reform that increased the length of compulsory schooling in Norway in the 1960s to study the causal effect of formal general education on returns on wealth (k-returns). OLS estimates reveal a strong, positive and statistically significant correlation between education and returns on individual net worth. This effect disappears in IV regressions, implying that general education has no causal effect on individual performance in capital markets, whose heterogeneity largely reflects non-acquired ability. On the contrary, we find that education causes higher returns in the labor market (l-returns). We speculate about possible rationales for this important asymmetry.

Pages: 45 pages
Date: 2020, Revised 2020-01
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