Estimating the return to investments in education:: how useful is the standard Mincer equation?

We examine how well the schooling coefficient in standard Mincer equations, estimated on Swedish data for 1968, 1981 and 1991, approximates the marginal internal rate of return to education. We find three cases where inference from the estimated schooling coefficient is misleading. First, the decline in return to schooling from 1968 to 1981 is mainly concentrated to college education, whereas the return to high school education is stable. Second, the rate of return is sensitive to the assumption made about the length of working life, or the retirement decision. Third, both the schooling coefficient and the internal rate of return give misleading information about the value of adult education. By comparing the present value of lifetime earnings between youth and adult education, we find large differences in favor of youth education, even though the schooling coefficient and the internal rate of return are the same. (C) 2002 Elsevier Science Ltd. All rights reserved.