Written by: Brahim Boudarbat, Thomas Lemieux, and Craig
Riddell
Analyzed by: Mico Radulovic, Ben May, Dajana
Sormaz, Bryan Taylor, and Arjun Arulambala
 Returns to education
 Returns to experience
 Controlling for work experience
 Existing Canadian literature such as Freeman and Needels
(1993) and Burbidge, Magee, and Robb (2002) try to explain
the returns to education but are unsuccessful at clearly
presenting their findings and leave confusion among the
reader.
 The existing papers agree upon two main beliefs
 The belief that for the labour force as a whole the gap
between more-and less-educated workers remained
stable during the 1980s and 1990s
 The belief that the relative demand for more educated
workers increased since the late 1970s.
 Canadian Census from 1981-2006
 Weekly wage and salary earnings of full-time workers
aged 16-65
 Inconsistency of Survey of consumer finances (SCF)
 Restricting study of recent developments
 Attention focused on the private benefits to the
individual in the form of higher earnings and
employment
 Price dimension is used
 Referred to as “skill premium”
 Workers are classified into five groups
 less than a high school diploma
 high school diploma
 post-secondary degree or diploma below a university
bachelor’s degree (including trade certificates)
 university bachelor’s degree
 postgraduate degree (master’s, PhD, and professional
degrees)
 Returns to education
 High school graduate earnings used as base
 Workers are placed into their category irrespective
 Both raw or unadjusted and adjusted results displayed
 Adjusted results are either controlling for experience
and age or education
 Different from previous studies, since they do not
control
 Results reported based on weekly wages and salary of
full time workers
 Returns to experience/age
 adjusted wage gap are calculated by regressing log wages
on a set of age dummies
 the regression also controls for education using
dummies for the five education categories
 men aged 46-55 are chosen as reference category
 Median measures are relatively unaffected by increases
in returns to education by workers in the top part of
the wage distribution
 Therefore, both means and medians are reported in
this study
 Results show differences between the two are small
 Human Capital refers to the skills, knowledge and competencies
of individuals.
 Two key factors that influence an individual’s Human Capital;
 Formal education
 Work experience (age)
 Main focus will be the impact of formal education and work
experience has on an individuals private benefits.
 Methods to analyze the results
 Average treatment effect on the treated (also known as average return)
 Marginal return
 Price dimension
 Quantity dimension
 Sharp increase in the return for BA graduates over the
past 25 years
 The earnings of those with postgraduate and
professional degrees are fairly stable over the 25-year
period
 Upward trend in the return to a post-secondary
diploma
 The earnings difference for high school graduates and
men with less than a high school diploma widened in
recent years
 For all educational categories except university BA
graduates, controlling for differences in experience
decreases the return to education
 The earnings differential between high school
graduates and non-graduates becomes much larger
when adjusting for differences in work experience
 Younger cohorts are more highly educated, and this
generates a negative correlation between schooling
and experience
 The main differences from the results for men are:
 The returns to education for women are larger
 The adjusted education wage differentials among women
were more stable from 1980-2000, though they did widen
between 2000 and 2005
 The earnings associated with a post-secondary diploma
and a postgraduate education increase throughout the 25year period
 The adjusted gap between high school graduates and nongraduates is stable between 1980-2000, and widens in 2005
 Controlling for work experience has the largest effect on
those with less than a high school diploma, and the
smallest effect on those with a postgraduate education
 The adjusted wage differentials also reveal more of an
upward trend than the corresponding unadjusted results
 Substantial expansion between 1980 and 1995 in
the wage gap between younger workers (16-25)
and older workers (26-35)
 After 1995, relative wages of younger workers
stabilized
 Between 1995 and 2000 there was a market
reversal of earlier trends as relative earnings
increased
 After 2000, however, most of this improvement
in relative earnings is given up
 The large gap in the growth in earnings for
younger and older workers is less dramatic when
looking at the adjusted results
 The reason for this is because of a slowdown in
growth in education attainment among
Canadian men born after 1950
 Similar to the results for men, females have a
substantial growth in wage inequality by age over the
25-year period
 Between 1995 and 2005, these differentials widen
further for women
 Although the earnings gap between younger and older
workers increases more for women, the magnitudes of
these gaps are larger for men
 Human capital theory deals with the very nature of
what is the optimal choice of education levels
 Study suggests that education alone does not
determine wage differentials over time
 Market wages play an important role
 Public policy should focus on job creation and
increasing incentive to obtain higher education