Heterogeneity in schooling rates of return

This paper relaxes the assumption of homogeneous rates of return to schooling by employing nonparametric kernel regression. This approach allows us to examine the differences in rates of return to education both across and within groups. Similar to previous studies we find that on average blacks have higher returns to education than whites, natives have higher returns than immigrants and younger workers have higher returns than older workers. Contrary to previous studies we find that the average gap of the rate of return between white and black workers is larger than previously thought and the gap is smaller between immigrants and natives. We also uncover significant heterogeneity, the extent of which differs both across and within groups. Finally, we uncover the characteristics common amongst those with the smallest and largest returns to education.

► This paper employs nonparametric kernel estimation to recover heterogeneity in returns to education. ► We confirm the findings that on average blacks have higher returns to education than whites, natives have higher returns than immigrants and younger workers have higher returns than older workers. ► We also recover large heterogeneity in returns to education both within and across groups.