Earnings Functions and Rates of Return

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Abstract
The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for dierent schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that takes into account tuition costs and income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method dier substantially from Mincer returns