Changing returns to education across cohorts : selection, school system or skills obsolescence?

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Discussion Papers No. 302, June 2001 Statistics Norway, Research Department

Torbjørn Hægeland

Changing Returns to

Education Across Cohorts:

Selection, School System or Skills Obsolescence?

Abstract:

This paper investigates whether economic returns to education in Norway differ across cohorts. Differences in returns to education may arise from selection effects - the large increase in educational attainment in postwar years may have changed selection into education. They may also result from changes in the school system, having been

transformed towards a more egalitarian system. Finally, cohort effects may arise from skills obsolescence - technological change may make old education less worth in the labor market. The empirical results suggest that there has been a decline in the returns to education across cohorts. Controlling for self-selection into education, however, the cohort differences vanish. There is no strong evidence in favor of the skills obsolescence explanation, and no support for the hypothesis that the quality of schooling has declined over time. Cohort differences in returns to education seem to have been driven by selection effects.

Keywords: Returns to education, cohort effects, educational policy, self-selection.

JEL classification: J31

Acknowledgement: Thanks to Rolf Aaberge, Ådne Cappelen, John K. Dagsvik, Jarle Møen and Kjell G. Salvanes for comments and suggestions, and in particular to Tor Jakob Klette for his continuous support. The paper has benefited from discussions following

presentations at University of Uppsala, University of Oslo, The Norwegian School ofEconomics and Business Administration, Statistics Norway, Bø College and at the 1st Nordic Econometric Meeting in Sandbjerg. This project has received financial support from the Norwegian Research Council.

Address: Torbjørn Hægeland, Statistics Norway, Research Department. E-mail:

torbjorn.haegeland@ssb.no

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58