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School Quality and Earnings

Increased schooling is associated with better outcomes along a number of dimensions. Among the outcomes that improve, on average, with each additional year of schooling are an individual’s wages, probability of being employed, health, and life expectancy. The improvements in outcomes associated with each year of schooling are referred to as the returns to schooling. This entry discusses the relationship between school quality and the returns to schooling.

Theory suggests that increasing school quality can increase individuals’ wages both directly, by increasing the individual’s human capital, and indirectly, by increasing the total years of schooling attained by the individual. When choosing whether to attain an additional year of schooling, an individual compares the present discounted value of schooling with the present discounted value of its cost. ...

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