Economic Returns to College Education in Europe: 2005-2019

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Abstract

Information on economic returns to college education has indisputable value for policymakers and individuals, yet standard estimates hinge on unrealistic assumptions about the homogeneity of treatment effects across the population or do not take into account differences in the backgrounds of college-goers and non-college-goers. In this article we address those issues by using the newly developed local instrumental variable method for heterogeneous treatment effects due to unobservables presented in general form in Heckman, Urzua, and Vytlacil (2006). Estimates are performed for 28-to-38-year-olds in 22 EU countries participating in the 2005, 2011 and 2019 EU-SILC surveys, i.e. the most recent waves when data on parental background was also collected. Our results reveal the presence of negative ability bias – i.e. that Mincer-type returns to college strongly underestimate those returns compared to models utilizing the Heckman estimation procedure – particularly in countries with the lowest degrees of educational opportunity at the tertiary level. On the other hand, the degree of ability bias tends to decline as educational opportunity rises, leading to insignificant differences between OLS and MTE estimates for some countries.

Author

• Michael Lee Smith, Czech Academy of Sciences