Dynamic rates of return to education in the US

This paper develops dynamic and expected dynamic rates of return to high sc hool and college education for males and females for 1967-95 that take the effects of annual changes in institutional costs and in real earnings withi n each age group in cross section age earnings profiles into account. As such they are more comparable to total returns on financial assets. Base d on Current Population Survey data, and on adjustments for net "ability" b ias from recent studies of identical twins, it is shown that the standard r ates of return underestimate the returns to college in 1995 by 3 percentage points for male college graduates and 5 percentage points for females. Ass uming that recent trends are based on underlying technical change, globaliz ation, and other factors that are likely to persist, these expected dynamic rates averaged 13.3% in real terms or 11.7% if corrected for ability, fami ly factors, and for measurement error. (C) 2001 Published by Elsevier Scien ce Ltd.