Education, occupational class, and unemployment in the regions of the United Kingdom

Abstract

Students in many countries face increased costs of education in the form of direct payments and future tax liabilities and, as a consequence, their education decisions have taken on a greater financial dimension. This has refocused attention on obtaining meaningful estimates of the return to education. Routinely these returns are estimated as the additional earnings derived by an individual following their acquisition of an additional one year of education. However, the use of earnings data in this context is not without methodological problems including likely attenuation and ability bias in measuring the earnings/education relationship, issues concerning the appropriate rate of discount to apply to observed earnings gains and the appropriateness of using years‐of‐education as the measure of educational attainment. In this paper we explore the use of an alternative means of assessing returns to education by examining shifts in the likelihood of gaining ‘labour market success’ from various levels of educational qualification within the framework of an ordered logit model. This method offers three distinct advantages: it favours the use of data from the Sample of anonymised records of the 2001 Census for the United Kingdom of Great Britain and Northern Ireland, which, in turn, allows the joint consideration of most of the control variables thought to influence returns to education; it focuses upon the prime source of pecuniary returns to education (labour market success); and it gives expression to the ‘screening device’ and the ‘credentials’ aspects of education by focusing upon the importance of qualifications gained rather than the number of years spent in education.

Keywords:

• education
• occupational class
• unemployment

Acknowledgements

The authors are grateful to the Department for Education and Learning, Northern Ireland for supporting this project and to the Cathy Marsh Centre for Census and Survey Research at the University of Manchester for the use of data from the Sample of Anonymised Records of the 2001 Census for the United Kingdom of Great Britain and Northern Ireland. Thanks are also due to Wendy Lecky and Alan Ramsey whose comments have greatly improved the paper. However, needless to say, the authors are entirely responsible for the paper and, in particular, for its shortcomings.

Notes

1. This result is very similar to the results obtained by Bonjour et al (2003) using data for UK twins. They found a return of 7.7% for an additional year of schooling. Other studies have used different instruments such as the effects of the Second World War on German students (Ichimo and Winter‐Ebmer 2004), geographical proximity to a US college (Card 1995) and test scores as explanatory variables (Neumark 1999), and the quality of school infrastructure in Indonesia (Duflo 2002).

2. The assumption that the ε _i are normally distributed results in an ordered probit model.

3. The logit equation is for K coefficients, β _i and for observations on K variables where Pr(Y_i = 1) = e^z /(1 + e^z ).

4. The marginal probability is defined as .