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Labor-market returns to postsecondary education in Europe and the United States

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The impact of post-secondary education on labour market outcomes

From school to work: Researchers have applied state-of-the-art statistical techniques and methodologies to advance our understanding of how post-secondary education affects labour market outcomes.

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It is widely accepted that education pays off in better jobs and higher salaries. But how much does post-secondary schooling really improve labour market outcomes? This is the question researchers set out to answer with the EU-funded PSE RETURNS project. Headed by Dr Christopher Jepsen, project coordinator, the study focused on quantifying the value of labour market returns in both Europe and the United States. Three research streams Building on an existing project, initial research investigated the labour market and educational outcomes in relation to the United States’ General Education Development (GED) test. This work was done in collaboration with colleagues from the University of Missouri and University of Kentucky. In collaboration with colleagues from the University of Missouri, the second theme looked at the labour market returns to for-profit colleges and universities in the United States. The team has published a related working paper under the IZA Discussion Paper Series. Finally, the third research stream examines labour market outcomes of post-secondary education in Europe. To study the labour market returns to vocational post-secondary education in Finland, PSE RETURNS is collaborating with colleagues from the Turku School of Economics and Labour Institute for Economic Research and the University of Jyväskylä, Finland. Post-secondary education increases employment and earnings potential Research on the GED employed regression discontinuity to compare people barely above and barely below a threshold. ‘For the GED test, we find no discernible difference in employment and earnings between individuals who barely pass the test and individuals who barely fail the test,’ said Dr Jepsen. ‘The wider implication of this finding is that having a test like the GED in Europe is unlikely to improve labour market outcomes under the assumption that the results in Europe would be similar to the results in the US.’ Using a person fixed effects methodology, research on for-profits in the United States revealed that attending such institutions is associated with earnings improvement of 25 % or more within the first five years of labour market entry. ‘The main implication of the results on US for-profit colleges and universities is that there may be scope, at least in the US, for the private sector to provide post-secondary education that benefits students,’ explained Dr Jepsen. Research on vocational programmes in Finland used the same fixed effects methodology together with a matching methodology. ‘Compared to individuals with no post-secondary education, students who attend vocational bachelor’s degree programmes in Finland have higher annual earnings of approximately EUR 3 500, or 13 %, and employment gains of 2.5 percentage points after 10 years,’ noted Dr Jepsen. Further, the study showed that 5 years after attending vocational master’s programmes individuals have higher earnings of around 8 %. More flexibility is better! The project’s most important finding is that attendance at post-secondary education (whether at for-profit colleges/universities in the United States or at vocational bachelor’s and master’s programmes in Finland) is associated with better employment opportunities. The work also contributes an improved way to estimate labour market returns. In turn, it emphasises the importance of using a more flexible model for estimating labour market returns to education. With project research still ongoing, Dr Jepsen is confident the ‘results regarding US for-profit colleges and universities have the potential to inform best practice guidelines for calculating labour market returns to education.’ The project team is actively disseminating the results. Some of the most important publications include: ‘Labor-market returns to the GED using regression discontinuity analysis’ (Journal of Political Economy), ‘Second chance for high-school dropouts? A regression discontinuity analysis of post-secondary educational returns to the GED’ (Journal of Labor Economics), and ‘More skilled, better paid: Labor-market returns to vocational postsecondary education’ (Oxford Economic Papers, forthcoming).


PSE RETURNS, post-secondary education, labour market returns, vocational, earnings, universities, employment, for-profit colleges, regression discontinuity

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