The Economic Returns to Schooling for Italian Men: An Evaluation Based on Instrumental Variables

Abstract

We study the relationship between (log) current earnings and educational levels in Italy. In line with other international evidence, we find that OLS underestimates the marginal return to additional education. When the endogeneity of educational choice is taken into account, the marginal return from one additional year in junior high school increases from 3.2 to 5 percent. Similarly, the marginal return from one additional year in secondary school or in college increases respectively from 3.4 to 4.2 percent and from 6.4 to 7.2 percent. Using longitudinal data, we also find that individuals of the same age with higher education experience faster earnings growth. Hence, there is evidence that wage differentials by education widen as individuals grow older.