Earnings Profile: Ability and Schooling

This study examines the role played by ability in determining earnings differentials along both the earnings profile for given levels of schooling attainment and across schooling levels. Information about these relationships is important for determining more precisely the quantitative contribution of schooling to earnings as well as the "technology" by which schooling increases earnings. The net earnings increment from schooling has been subject to some uncertainty because most studies have lacked data on ability. If people of higher ability have the capacity to earn more (at a given schooling level) and if they also tend, significantly, to acquire more schooling than others, the failure to take ability differences explicitly into account has two consequences: it leads one to overstate the gross contribution of schooling to earnings and to understate the opportunity cost of foregone earnings to high-ability persons who attain high levels of schooling. There is a well-documented, strong, positive relationship between earnings and schooling attainment, and the rising demand for (and expansion of) formal schooling seems to be significantly motivated by the expectation of higher earnings. However, there is little decisive evidence,