Media Briefings

CHANGES IN COMPULSORY SCHOOLING: NEW CROSS-COUNTRY EVIDENCE OF THE IMPACT ON EARNINGS AND INEQUALITY

  • Published Date: March 2009

Giving people extra years in education – for example, by raising the minimum school leaving age – not only raises their average earnings but also reduces wage inequality. That is the central finding of new research by Giorgio Brunello, Margherita Fort and Guglielmo Weber, which analyses data on 12 European countries.

Indeed, the study, published in the March 2009 issue of the Economic Journal, shows that the benefits of additional education are higher for less fortunate and less talented individuals. The authors conclude that education policies that focus on equality of opportunity for the less fortunate and less talented can be justified not only on equity grounds but also on grounds of cost-effectiveness.

The study uses cross-sectional data on 12 European countries and the compulsory schooling reforms introduced after the Second World War in Europe to examine the impact of education on wages. It finds that:

  • Compulsory schooling reforms, typically targeted at the less educated, have had a pervasive effect on individuals’ educational attainment, highest among the less talented but present also, albeit to a substantially lower extent, among the better endowed, especially women.
  • For example, each additional year of compulsory schooling translates into nearly five months of additional schooling for the less talented and nearly one month of additional schooling for more talented women.
  • The increase in earnings induced by an additional year of schooling (the ‘returns to education’) varies across similar individuals. The returns to an additional year are generally higher for those who earn relatively low wages and acquire relatively fewer years of education.
  • Each additional year spent in school translates into a nearly 6% increase in wages for less talented men and around 8% for less talented women. The returns to additional schooling are nearly 4% and 5% respectively for more talented men and more talented women.
  • For individuals who earn relatively low wages, the returns to an additional year of education are about 1.5 percentage points higher than the returns for those who earn higher wages. Thus, for example, a three-year degree would correspond to about a 5 percentage points decrease in wage inequality.

The policy implications of these results are important. Suppose that earnings and productivity are closely related, a plausible assumption. Then education policies aimed at raising the educational attainment of the less fortunate and talented are grounded on equity considerations if the less lucky are so because of circumstances behind their control. But there is a trade-off if the returns to additional education are higher for the more talented.

The finding that the returns are higher among the less talented and fortunate suggest that the higher schooling costs may be compensated, at least among individuals whose schooling decision is affected by mandatory schooling legislation in Europe.

ENDS

Notes for editors: ‘Changes in Compulsory Schooling, Education and the Distribution of Wages in Europe’ by Giorgio Brunello, Margherita Fort and Guglielmo Weber is published in the March 2009 issue of the Economic Journal.

Brunello and Weber are at the University of Padova. Fort is at the University of Bologna.

The analysis underpinning this study is based on cross-sectional data drawn from the eighth wave of the European Community Household Panel (ECHP, 2001), the first wave of the Survey on Household Health Ageing and Retirement in Europe (SHARE,
2004, release 1) and the wave 1993 to 2002 of the International Social Survey Program (ISSP). The countries included in the study are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain and Sweden.

For further information: contact Margherita Fort on +39-(0)51-2098034
(email: margherita.fort@unibo.it) or Romesh Vaitilingam on +44-7768-661095 (email:
romesh@vaitilingam.com).