written by: brahim boudarbat, thomas lemieux, and craig riddell analyzed by: mico radulovic, ben...
TRANSCRIPT
Written by: Brahim Boudarbat, Thomas Lemieux, and Craig Riddell
The Evolution of the Returns to Human Capital
in Canada, 1980-2005
Analyzed by: Mico Radulovic, Ben May, Dajana Sormaz, Bryan Taylor, and Arjun Arulambala
Returns to education
Returns to experience
Controlling for work experience
Introduction
Existing Canadian literature such as Freeman and Needels (1993) and Burbidge, Magee, and Robb (2002) try to explain the returns to education but are unsuccessful at clearly presenting their findings and leave confusion among the reader.
The existing papers agree upon two main beliefsThe belief that for the labour force as a whole
the gap between more-and less-educated workers remained stable during the 1980s and 1990s
The belief that the relative demand for more educated workers increased since the late 1970s.
Some Background to the Problem
Canadian Census from 1981-2006
Weekly wage and salary earnings of full-time workers aged 16-65
Inconsistency of Survey of consumer finances (SCF)
Restricting study of recent developments
Data Source
Attention focused on the private benefits to the individual in the form of higher earnings and employment
Price dimension is used
Referred to as “skill premium”
Methods
Workers are classified into five groupsless than a high school diplomahigh school diplomapost-secondary degree or diploma below a
university bachelor’s degree (including trade certificates)
university bachelor’s degree postgraduate degree (master’s, PhD, and
professional degrees)
Methods (Cont’d)
Returns to educationHigh school graduate earnings used as baseWorkers are placed into their category
irrespective Both raw or unadjusted and adjusted results
displayedAdjusted results are either controlling for
experience and age or educationDifferent from previous studies, since they do
not controlResults reported based on weekly wages and
salary of full time workers
Methods (Cont’d)
Returns to experience/ageadjusted wage gap are calculated by
regressing log wages on a set of age dummiesthe regression also controls for education using
dummies for the five education categoriesmen aged 46-55 are chosen as reference
category
Methods (Cont’d)
Median measures are relatively unaffected by increases in returns to education by workers in the top part of the wage distribution
Therefore, both means and medians are reported in this study
Results show differences between the two are small
Methods (Cont’d)
Human Capital refers to the skills, knowledge and competencies of individuals.
Two key factors that influence an individual’s Human Capital; Formal education Work experience (age)
Main focus will be the impact of formal education and work experience has on an individuals private benefits.
Methods to analyze the results
Average treatment effect on the treated (also known as average return)
Marginal return Price dimension Quantity dimension
Measuring Returns to Human Capital
Returns to Education
Sharp increase in the return for BA graduates over the past 25 years
The earnings of those with postgraduate and professional degrees are fairly stable over the 25-year period
Upward trend in the return to a post-secondary diploma
The earnings difference for high school graduates and men with less than a high school diploma widened in recent years
Returns to Education (Cont’d)
Returns to Education (Cont’d)
For all educational categories except university BA graduates, controlling for differences in experience decreases the return to education
The earnings differential between high school graduates and non-graduates becomes much larger when adjusting for differences in work experience
Younger cohorts are more highly educated, and this generates a negative correlation between schooling and experience
Returns to Education (Cont’d)
Returns to Education (Cont’d)
Returns to Education (Cont’d)
The main differences from the results for men are:The returns to education for women are largerThe adjusted education wage differentials among women were
more stable from 1980-2000, though they did widen between 2000 and 2005
The earnings associated with a post-secondary diploma and a postgraduate education increase throughout the 25-year period
The adjusted gap between high school graduates and non-graduates is stable between 1980-2000, and widens in 2005
Controlling for work experience has the largest effect on those with less than a high school diploma, and the smallest effect on those with a postgraduate education
The adjusted wage differentials also reveal more of an upward trend than the corresponding unadjusted results
Returns to Education (Cont’d)
Returns to Age/Experience
Substantial expansion between 1980 and 1995 in the wage gap between younger workers (16-25) and older workers (26-35)
After 1995, relative wages of younger workers stabilized
Between 1995 and 2000 there was a market reversal of earlier trends as relative earnings increased
After 2000, however, most of this improvement in relative earnings is given up
Returns to Age/Experience (Cont’d)
Returns to Age/Experience (Cont’d)
The large gap in the growth in earnings for younger and older workers is less dramatic when looking at the adjusted results
The reason for this is because of a slowdown in growth in education attainment among Canadian men born after 1950
Returns to Age/Experience (Cont’d)
Returns to Age/Experience (Cont’d)
Returns to Age/Experience (Cont’d)
Similar to the results for men, females have a substantial growth in wage inequality by age over the 25-year period
Between 1995 and 2005, these differentials widen further for women
Although the earnings gap between younger and older workers increases more for women, the magnitudes of these gaps are larger for men
Returns to Age/Experience (Cont’d)
Human capital theory deals with the very nature of what is the optimal choice of education levels
Study suggests that education alone does not determine wage differentials over time
Market wages play an important rolePublic policy should focus on job creation and
increasing incentive to obtain higher education
Relation to Public Policy
Q&A