Dispersion in the economic return to schooling

We extend the standard human capital earnings function to include dispersion in the return to schooling by treating the return as a random coefficient (RC). If the rapid expansion in participation in higher education has been brought about by dipping further into the ability distribution, we should observe a rise in the variance of returns. Alternatively, if the expansion has come about through relaxing credit constraints then we might expect to see an increase in both the mean and variance of returns. Our estimates suggest that the variance in returns has not risen over time. (C) 2003 Elsevier Science B.V. All rights reserved.