Heterogeneous Economic Returns to Postsecondary Degrees: Evidence from Chile

Abstract

We analyze the economic returns to postsecondary degrees in Chile. We posit a schooling decision model with unobserved ability, degree-specific tuition costs, and earnings. We use administrative records to carry out our empirical analysis. Our results show positive average returns to postsecondary education, especially for five-year degrees. However, we also uncover significant heterogeneity. We document how unobserved characteristics (ability) determine the economic benefits of first- and second-best choices, even leading to negative returns to postsecondary degrees. Our findings illustrate the importance of allowing for heterogeneous treatment effects and individual’s choices when examining the returns to education.