Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond

By James J. Heckman, Lance Lochner, Petra E. Todd. Social Science Research Network, 2005

1,026 citations recorded by the source corpus.

This paper considers the interpretation of "Mincer rates of return." We test and reject the Mincer model. It fails to track the time series of true returns. We show how repeated cross section and panel data improves the ability of analysts to estimate the ex ante and ex post marginal rate of returns. Accounting for sequential revelation of information calls into question the validity of the internal rate of return as a tool for policy analysis. The large estimated psychic costs of schooling found in recent work helps to explain why persons do not attend school even though the financial rewards for doing so are high. We present methods for computing distributions of ex post and ex ante returns.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ebdd946181b5650d91c1e1b426ba6de1f7a9f981

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Citations in the corpus

“I Need Help!” Social Class and Children’s Help-Seeking in Elementary School (2011, background): “Yet, given the importance of schooling for other life outcomes (Heckman, Lochner, and Todd 2006; Lynch 2003), children’s actions in classrooms likely have more significant and lasting consequences than do their actions in other settings.”
An Empirical Investigation of the Option Value of College Enrollment (2012, background): “6See Heckman, Lochner, and Todd (2006) for a discussion of recent evidence on the importance of psychic costs.”
The Human Capital Stock: a Generalized Approach (2014, neutral): “[8] Brucker, Herbert and Cecily Defoort.”
Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling (2007, methodology): “See Carneiro, Hansen, and Heckman (2001, 2003), Cunha, Heckman, and Navarro (2005, 2006) and Cunha and Heckman (2006) for examples of this work.”
General Education, Vocational Education, and Labor-Market Outcomes over the Lifecycle* (2011, positive): “Heckman,Lochner,andTodd(2006) directlycomparesyntheticcohortinformation(usingasinglecross-section)withrepeatedcross-sectionana-lysesandfindthatthesyntheticcohortanalysisofMincerearningsmodelsprovidesinaccurateestimatesofex-post rates of return to schooling.”
Comparing IV With Structural Models: What Simple IV Can and Cannot Identify (2010, background): “The two terms of the decomposition are defined as generalized MTEs and are weighted averages of the gain of moving from state 2 to state 1 for persons on the margin of 24See Heckman, Lochner, and Todd (2006) for discussions of this model and various justifications for it.”
Heterogeneous Income Profiles and Lifecycle Bias in Intergenerational Mobility Estimation (2016, background): “Current empirical 47For example, Heckman et al. (2006) argue that log earnings in schooling and experience are not multiplicative separable.”
The Distribution of Teacher Quality and Implications for Policy (2012, background): “…explains individual earnings in terms of school attainment and experience 24Much of the labor economics consideration of earnings determination has focused on the estimates of r, interpreted as the rate of return on schooling (see Card 2001, but also the re-interpretation in Heckman et al. 2006).”
Personality, IQ, and Lifetime Earnings (2018, methodology): “Labor market outcomes, in particular, have been hown to be influenced by skills such as self-control ( Moffitt et al., 011 ), Conscientiousness ( Prevoo and ter Weel, 2015; Uysal and ohlmeier, 2011 ), Self-esteem, or Locus of Control ( Caliendo et al., 015; Heckman et al., 2006b ).”