Essays on the Returns to Higher Education

This dissertation examines social and private returns to higher education, which have important implications for development and public finance. Despite their importance, reliable empirical evidence on the returns to higher education is scarce due to the endogeneity in higher education at individual and aggregate levels. This dissertation exploits quasi-experiments to explore the causal effect of higher education on various outcomes. The first chapter, "Does Human Capital Spillover Beyond Plant Boundaries?: Evidence from Korea" explores a social return to human capital by examining the magnitude of human capital externalities on plant productivity. Human capital externalities exist if plants in a region with a high level of human capital can produce more--given similar inputs--than plants in a region with less human capital. This is difficult to ascertain because human capital levels are endogenous. To address this issue, this paper exploits an educational reform which exogenously increased cross-region differences in the supply of college graduates starting in the mid 1980s.Using annually collected plant level data, I explore the effect of changes in human capital levels induced by this reform on plant productivity. My results suggest that externalities are limited. I find a correlation between the level of human capital and plant productivity which is similar to that observed in the U.S. However, after using an instrumental variable, the effect of the overall level of human capital on productivity decreases and becomes statistically insignificant. The second chapter "The Impact of College Education on Labor Market and Non-pecuniary Outcomes"(with Hyelim Son) exploits an education reform in Korea which discretely increased freshmen enrollment in 1981--to examine the private returns produced by college education. Due to the compulsory school entrance law in Korea, the cohorts that were born after 1962 were more likely to enter college in 1981 or after. Thus, the cohorts born after 1962, had a higher chance of having college education than the cohorts born before. We exploit this idea and adopt a regression discontinuity design to compare the fraction of individuals with some college education and the average wage for cohorts born close to 1962. Our result suggests that college education has a positive effect on labor market outcomes. In addition, we find that college education affects saving, smoking and transfer behavior. The third and final chapter of my dissertation, "The Effect of Higher Education on the Careers of Workers", examines the effect of college education on individuals' subsequent careers. As documented by recent literature, college graduation plays a direct role in revealing an individual's ability to labor market. Thus, the ability of college graduates is more directly observed than the ability of high school graduates in the labor market. I examine whether this difference in ability revelation between college and high school graduates has an implication on their career after hey enter the job market. I build a model that yields testable implications regarding the effect of college education on ability revealing activity, given the role of college education in ability revelation. Using the NLSY79 data, I empirically confirm the prediction of the model. In particular, I find that high ability high school graduates more actively engage in ability revealing activities than high ability college graduates. Overall, the results coincide with the predictions of the model, implying that the difference in ability revelation has a large implication on understanding different careers of high school and college graduates