New research questions the commonly held belief that more education is necessarily ''good for you'' and will result in higher wages and better life outcomes. The study by Dr Franz Buscha and Dr Matt Dickson, which will be presented at the Royal Economic Society''s 2016 annual conference in March, examines for the first time in the UK, the relationship between wages and education over the entire lifecycle.
The key findings are that:
? An additional year of schooling from the 1972 education reform in England and Wales resulted in a lifetime earnings loss of up to £45,000 over a 35-year period.
? Experience matters. Minimum school leaving age reforms might increase education but they also lead to a loss of potential labour market experience.
? The effect of experience lost is not overcome until individuals are in their mid-30s.
? When only the ''pure'' education effect is examined, results suggest a positive return of approximately £60,000 over a 35-year period.
Why is education and investment in human capital important? Does more education imply that people earn higher salaries? When are such effects felt over a life-course? How might our current generation of children be affected by the recent raising of the participation age to 18? These are the kind of questions that are examined and answered in this study.
By carefully examining individual lifelong data from the Office of National Statistics (ONS) New Earnings Panel Dataset, this study, for the first time, provides an insight into the year-by-year effects of the 1972 reform that raised the school leaving age. This reform increased the compulsory minimum school leaving age from 15 to 16, substantially increasing the average length of schooling and qualification outcomes for many children.
But when comparing the lifetime wage trajectories of individuals who were born shortly before and shortly after the reform, the authors find that those with additional education suffered significantly lower wages in the first part of their working lives. On average, men with additional education suffered lower earnings until they were aged mid-30s. Post mid-30s wage differentials were non-significant.
Previous work on this question generally suggested that the effect of 1972 school leaving age reform was positive; more recent estimates have challenged the magnitude of such effects suggesting a downward revision from 15% to 5%. But none of these studies examined the early parts of the lifecycle, concentrating only on the later working years.
The new results show that the overall effect of an additional year of schooling on hourly wages was at best 0% and at worst -5%, which equates to a lifetime loss of £45,000, assuming full-time work.
Importantly, the authors argue that this negative effect is induced by the loss of early labour market experience and that previous studies did not adequately deal with this phenomenon. When correcting for this, the authors identify that the effect of education remains positive and significant.
In other words, the results of this research show that school leaving age reforms must consider not only the benefit of additional education that children might receive but also the opportunity cost that the loss of experience might incur.
Dr Buscha says:
''Our research shows that it is important that when designing school leaving age reforms, such as the recent Raising of the Participation Age, that children are not only made to learn useful skills during this additional education but that practical arrangements are made to smooth integration into the labour market such that the negative effects of lost work experience are kept to a minimum.''
''The wage returns to education over the life-cycle: Heterogeneity and the role of experience'' – Dr Franz Buscha of the University of Westminster and Dr Matt Dickson of University of Bath