How Convincing Is The Evidence Linking Education and Income?

Abstract

Is the correlation between income and educational attainment a result of the payoff to investments in schooling? Since the experiment of randomly selecting individuals to go to school cannot be performed, non-experimental methods must be used to estimate the economic returns to schooling. This paper reviews new studies that measure the effect of schooling on income (1) by using comparisons of brothers, fathers and sons, and twins and (2) that focus on natural experiments. These studies provide very credible evidence that schooling does increase incomes and that earlier studies may have under- estimated the role of schooling in determining incomes.