Estimating the Effect of Higher Education on an Employee’s Wage

Abstract

This paper proposes a new method for estimating the effect of education on an employee’s wage: with the help of the generalized Heckman model with switching. Application of this method makes it possible to avoid the selection bias due to the endogenous accounting for nonrandom consideration of individuals both as employed and having higher education. This model makes it possible to estimate whether it is worthwhile for an individual to get a higher education in terms of changes in their expected income. Analysis of the distribution of the effect of the education level on wages among employees makes it possible to evaluate the efficiency of the higher education system in providing the population with skills and competencies that are significant in the labor market.