Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/21077
Authors: 
Modesto, Leonor
Year of Publication: 
2000
Series/Report no.: 
IZA Discussion paper series 230
Abstract: 
In this paper we analyse educational choices and earnings of individuals at two different levels in the Portuguese educational system. At each potential exit level we consider two decisions: the decision to continue studying and the employment decision, whereas normally only the first decision is modelled. Correlation between the error terms of the earnings functions and the decision functions, for each level of education, is allowed and we correct for the potential selectivity bias. We find empirical support for the existence of selectivity bias as the errors of the earnings functions are correlated with the disturbances of both decision functions for both educational levels considered. Moreover it is precisely the existence of selectivity mechanisms that renders the decisions actually taken by individuals optimal in terms of comparative earnings advantage. The obtained marginal rates of return to additional education vary between 2.3 and 9.6 percent per additional year of schooling, depending on whether or not selectivity effects are excluded from the computations. This finding reinforces again the importance of selectivity mechanisms in explaining educational choices.
Subjects: 
Educational choices
earnings
selectivity
JEL: 
I20
J31
Document Type: 
Working Paper

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