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Earnings Functions and Rates of Return

James Heckman, Lance Lochner () and Petra Todd

No 3310, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for different schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.

Keywords: nonparametric estimation; marginal internal rate of return; schooling (search for similar items in EconPapers)
JEL-codes: C31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu and nep-ltv
Date: 2008-01
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Published in: Journal of Human Capital, 2008, 2(1), 1-31

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Journal Article: Earnings Functions and Rates of Return (2008) Downloads
Working Paper: Earnings Functions and Rates of Return (2008) Downloads
Working Paper: EARNINGS FUNCTIONS AND RATES OF RETURN (2008) Downloads
Working Paper: Earnings Functions and Rates of Return (2008) Downloads
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