Are there no wage returns to compulsory schooling in Germany? A reassessment

Abstract

This study replicates and challenges the finding of zero wage returns to compulsory schooling in Germany by Pischke and von Wachter (Review of Economics and Statistics, 90(3), 592-598), which is unusual in the literature yet widely cited and until now uncontradicted. I document that this finding is sensitive to minor changes in sample restrictions and model specification. Further results suggest that their estimates are potentially confounded by previously unconsidered institutional details. These findings render the conclusion that compulsory schooling in Germany yields no wage returns at a minimum controversial.

Lifetime Consequences of Lost Instructional Time in the Classroom: Evidence from Shortened School Years

“…Earlier estimates of monetary returns to this compulsory schooling reform from survey data are largely imprecise and inconclusive Pischke and von Wachter (2008). found no statistically significant wage returns, which has been both confirmed(Kamhöfer and Schmitz, 2016) and questioned(Cygan-Rehm, 2022). The most recent study finds an approximately 8% wage return to one year of compulsory schooling in Germany, which is in line with the reduced-form effect estimated here.…”

Does compulsory schooling affect health? Evidence from ambulatory claims data

“…In turn, zero returns to education in Germany would rule out one important channel through which education could influence health. However, Cygan-Rehm [53] casts doubts on whether the findings of zero wage returns to education in Germany hold. Third, the lack of a causal impact of education on health might also stem from the fact that returns to education most likely depend on students' motivation in school.…”

“…We thus fulfill all methodological aspects that according to Mazumder[49] are needed for convincing study when exploiting compulsory schooling laws for identification: adopting an RD framework, exploiting month of birth for assigning treatment status and using sufficiently large samples.3 The reforms have already been found to have zero effects on earnings (see Pischke and van Wachter[51] and Kamhöfer and Schmitz[52]. However, recently, Cygan-Rehm[53] finds that there are positive wage returns to education when reanalysing the data from Pischke and von Wachter. In addition, the reforms have been used to estimate the causal effect of schooling on fertility[54], on intergenerational transmission of education[55], on political behaviour[56] and on pro-immigration attitudes[57].…”

Sophistication about Self-Control

“…Regarding the related literature that analyzes changes to the compulsory schooling laws in Germany, find zero wage returns-although this result has recently been challenged by Cygan-Rehm (2021). Considering non-pecuniary outcomes, reforminduced schooling had a positive effect on long-term health for men with mixed evidence for BMI and smoking (Kemptner et al, 2011) and on attitudes towards migration (Margaryan et al, 2021), negative effects on completed fertility (Cygan-Rehm and Maeder, 2013), and no effect on crystallized intelligence (Kamhöfer and Schmitz, 2016) or political participation (Siedler, 2010).…”

“…Apart from basic school students that were directly affected, this also includes intermediate school students. While the introduction of the compulsory ninth grade for basic schools did not change the basic school graduation certificate, it reduced the opportunity costs of attending an intermediate school to obtain a higher degree at ten years of education in total (see Cygan-Rehm, 2021). In the second stage, we regress (i) the likelihood of having a self-control problem (column 3) and (ii) conditional on having a self-control problem, the chances of being sophisticated (column 4), on instrumented years of schooling and the same control variables as in the first stage.…”