What lies behind returns to schooling: the role of labor market sorting and worker heterogeneity

Pedro Portugal, Hugo Reis, Paulo Guimarães and Ana Rute Cardoso

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: Do more educated workers earn higher wages partly because they have access to high-paying firms and occupations? We rely on linked employer-employee data on Portugal to combine the estimation of AKM models with the decomposition of the returns to schooling. We exploit exogenous variation in education driven by changes in compulsory education. We show that education provides access to better-paying workplaces and occupations: 30% of the overall return to education operates through the workplace channel and 12% through the occupationchannel. The remainder is associated exclusively with the individual. Match quality plays a modest role in the returns to education.

JEL-codes: I26 J24 J31 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-hrm, nep-inv and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202322

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