Why is investing in education important?

Economics Wednesday

A: The returns from investing in education are better most financial investments that is why...

According to " Estimating Returns to Schooling from State-Level Data: A Macro-Mincerian Approach" by Steven J. Yamarik, California State University at Long Beach, the social return to investing in education can be as high as 16%.

Abstract (from The B.E. Journal of Macroeconomics.)

In this paper, we use information from U.S. states to determine the social return to schooling. We estimate a macro-Mincerian model where aggregate earnings (or income) depend upon physical capital, labor, average years of schooling and average labor force experience. We find that the social return to U.S. schooling is 9 to 16 percent, which matches estimates of the private return found in the labor literature. Our results therefore provide evidence that U.S. schooling is indeed productive, but generates no positive externalities.

Quality of school matters

Economics of Education Review
Volume 27, Issue 5, October 2008, Pages 588-602
Mark C. Long
College quality and early adult outcomes

Abstract: This paper estimates the effects of various college qualities on several early adult outcomes, using panel data from the National Education Longitudinal Study. I find that college quality does have positive significant effects on most outcomes studied using OLS. While there is some evidence of positive selection bias in the OLS results, the alternative methods rarely produce findings that are significantly different from the OLS estimates. Furthermore, alternative methods have their own limitations, which are discussed. Across methods of estimation, there is solid evidence of positive effects of college quality on college graduation and household income, and weaker evidence of effects on hourly wages.

The author compares results from:
...ordinary least squares with three alternative methods of estimation, including instrumental variables, and the methods used by Dale and Krueger [(2002). Estimating the payoff to attending a more selective college: An application of selection on observables and unobservables. Quarterly Journal of Economics, 117(4), 1491–1528.] and Black and Smith [(2004). How robust is the evidence on the effects of college quality? Evidence from matching. Journal of Econometrics, 121, 99–124.]. I