ON FORMAL EDUCATION, SKILLS AND EARNINGS - THE ROLE OF EDUCATIONAL CERTIFICATES IN EARNINGS DETERMINATION

Are diplomas and degrees important for earnings? If so, why? This pape r enters the debates on these issues with two important advantages ove r prior research. First, it conceptualizes and measures formal educati on in terms of years and certificates. Second, it assesses worker skil ls directly, independently of both education and earnings. This resear ch shows that people with more years of schooling cam more partly beca use they are more productive. Those with certificates also earn more f or this reason. And those with more years and certificates earn more t han one would predict from their skills. Finally, women in medical and health occupations earn more for each additional year of schooling if they have a diploma or degree. The first result suggests human capita l theory; the second and third point to market signalling or credentia lism; and the fourth hints at segmented labour market theory. The enor mous importance of educational certificates for earnings suggests that market signalling theory is no minor corrective to human capital theo ry and that other aspects of education may be important for earnings a s well. That the economic payoffs to years of education can depend upo n diplomas or degrees implies that more than just market signalling th eory is required and challenges current conceptions of the economic re turns to education.