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

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.

EARNINGS FUNCTIONS AND RATES OF RETURN

The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for different schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.

Fifty Years of Mincer Earnings Regressions

The Mincer earnings function is the cornerstone of a large literature in empirical economics. This paper discusses the theoretical foundations of the Mincer model and examines the empirical support for it using data from Decennial Censuses and Current Population Surveys. While data from 1940 and 1950 Censuses provide some support for Mincer's model, data from later decades are inconsistent with it. We examine the importance of relaxing functional form assumptions in estimating internal rates of return to schooling and of accounting for taxes, tuition, nonlinearity in schooling, and nonseparability between schooling and work experience. Inferences about trends in rates of return to high school and college obtained from our more general model differ substantially from inferences drawn from estimates based on a Mincer earnings regression. Important differences also arise between cohort-based and cross-sectional estimates of the rate of return to schooling. In the recent period of rapid technological progress, widely used cross-sectional applications of the Mincer model produce dramatically biased estimates of cohort returns to schooling. We also examine the implications of accounting for uncertainty and agent expectation formation. Even when the static framework of Mincer is maintained, accounting for uncertainty substantially affects the return estimates. Considering the sequential resolution of uncertainty over time in a dynamic setting gives rise to option values, which fundamentally changes the analysis of schooling decisions. In the presence of sequential resolution of uncertainty and option values, the internal rate of return - a cornerstone of classical human capital theory - is not a useful guide to policy analysis.

Biological and statistical study of the development of the fleece of the Scottish mountain blackfaced breed of sheep from birth to maturity

The fleece of the Scottish Mountain Blackfaced sheep consists of an admixture of fibres which differ amongst themselves in respect of physical characterisation. The concensus of opinion amongst producers ani users of Blackfaced wool is that the fleece should consist of hair -like fibres, grouped into long, tapering staples which fall to either side of the body with a "part" along the dorsal line, forming a long, smooth, outer coat, whilst beneath this there should be an abundant growth of fine, shorter fibres called, in contradistinction to the fibres of the outer coat, wool. Ideally, each staple should taper to a tip not less than the size of an ordinary lead pencil. "Tithin the breed there is a great variation in fleece quality and quantity. Usually it is long and coarse and contains considerable numbers of white, opaque, pointed, hair -like fibres which will not take up dyes at all readily, which differ in their structure from the other constituents of the fleece, and which are known as kemp. In many animals a proportion of pigmented fibres can be found. Lying entangled amidst the growing fibres are to be found kemp fibres that have been shed.A detailed account of each of the types of fibre constituting the Blackface fleece follows. (see pages 45 -60) .It is reasonable to assume that the outer coat of this fleece mainly serves to protect the inner coat and skin from wet and injury, whilst the inner coat, in virtue of its physical properties, conserves bodily heat. Thus, the ideal type of fleece from the point of view of the breeder is one which provides adequate protection for the sheep in that it protects the body from cold, wind, rain and injury

Earnings Functions and Rates of Return

The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for different schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.schooling, marginal internal rate of return, nonparametric estimation

Opening Address

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Interpreting the Evidence on Life Cycle Skill Formation

This paper presents economic models of child development that capture the essence of recent findings from the empirical literature on skill formation. The goal of this essay is to provide a theoretical framework for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical studies, and for formulating policy. Central to our analysis is the concept that childhood has more than one stage. We formalize the concepts of self-productivity and complementarity of human capital investments and use them to explain the evidence on skill formation. Together, they explain why skill begets skill through a multiplier process. Skill formation is a life cycle process. It starts in the womb and goes on throughout life. Families play a role in this process that is far more important than the role of schools. There are multiple skills and multiple abilities that are important for adult success. Abilities are both inherited and created, and the traditional debate about nature versus nurture is scientifically obsolete. Human capital investment exhibits both self-productivity and complementarity. Skill attainment at one stage of the life cycle raises skill attainment at later stages of the life cycle (self-productivity). Early investment facilitates the productivity of later investment (complementarity). Early investments are not productive if they are not followed up by later investments (another aspect of complementarity). This complementarity explains why there is no equity-efficiency trade-off. for early investment. The returns to investing early in the life cycle are high. Remediation of inadequate early investments is difficult and very costly as a consequence of both self-productivity and complementarity.

The muscarinic antagonists scopolamine and atropine are competitive antagonists at 5-HT3 receptors.

Scopolamine is a high affinity muscarinic antagonist that is used for the prevention of post-operative nausea and vomiting. 5-HT3 receptor antagonists are used for the same purpose and are structurally related to scopolamine. To examine whether 5-HT3 receptors are affected by scopolamine we examined the effects of this drug on the electrophysiological and ligand binding properties of 5-HT3A receptors expressed in Xenopus oocytes and HEK293 cells, respectively. 5-HT3 receptor-responses were reversibly inhibited by scopolamine with an IC50 of 2.09 μM. Competitive antagonism was shown by Schild plot (pA2 = 5.02) and by competition with the 5-HT3 receptor antagonists [(3)H]granisetron (Ki = 6.76 μM) and G-FL (Ki = 4.90 μM). The related molecule, atropine, similarly inhibited 5-HT evoked responses in oocytes with an IC50 of 1.74 μM, and competed with G-FL with a Ki of 7.94 μM. The reverse experiment revealed that granisetron also competitively bound to muscarinic receptors (Ki = 6.5 μM). In behavioural studies scopolamine is used to block muscarinic receptors and induce a cognitive deficit, and centrally administered concentrations can exceed the IC50 values found here. It is therefore possible that 5-HT3 receptors are also inhibited. Studies that utilise higher concentrations of scopolamine should be mindful of these potential off-target effects.Our thanks are given to John Peters (University of Dundee) for the 5-HT3A subunit. ML thanks the Swiss National Science Foundation for financial support (SNSF- professorship PP00P2_123536 and PP00P2_146321). AJT thanks the British Heart Foundation for financial support (PG/13/39/30293).This is final version of the article. It first appeared from Elsevier via http://dx.doi.org/10.1016/j.neuropharm.2016.04.02