Answer

The Relationship between Individual’s Education and Income in Canada

Education plays an essential role in contemporary labour marketplaces. Several studies in various nations as well as time periods have showed that better-educated people earn higher incomes or wages, experience less unemployment, and work in extra prestigious careers that their less-educated fellows (Orley et al., 1999; Becker, 1975; Griliches, 1977). Notwithstanding the overwhelming proof of a positive relationship between labour marketplaces and education status, social scientists have been careful to make strong inferences regarding the causal effect of education/schooling on income (Seetman, 2000). The question regarding economic worth for a person obtaining a higher education level has for a long time preoccupied the minds of policy-makers and economists in Canada and globally. Therefore, this paper critically examines the relationship between an individual’s education and income within Canada by carefully considering how education affects income in Canada.

Under the concept of human capital, education is perceived as an investment in human capital that increases the future of people in the place of work (Griliches, 1977). Considering education as a human capital implies that just like other investments, there are both benefits and costs to the investment in education. The principal cost of education is the worth of time people spend capitalizing in education. The economic return to education (RTE) is classically determined using Mincer-type regression of the form log(y) = a + b S + other factors + e, where y is earnings and S the number of years of education (Mincer, 1974).

Notwithstanding the use of different data, studies have concluded alike regarding the RTE using natural experiment. Orley et al. (1999) considered high school as well as university graduates within Canada. Lemieux and Card (2001) examined the effect of education programs for WW II returning veterans on their future private citizen wages. Card and Lemieux (2001) state that a large number of WW II veterans in the U.S. took advantage of the popular GI Bill to go to university during the 1940s. A similar program was also available for Canadian veterans. The natural experiment facet of this program comes from the fact that the program had a varied implication in Quebec compared to other parts of Canada. Since comparatively fewer men from Quebec worked in the armed forces in WW II, the program had less effect there relative to other provinces. Additionally, the ‘college classique’ system was discriminatory and not well adapted for older learners like the veterans who were coming back who required the credentials to pursue university education. Thus, the program had virtually no effect upon francophone men who came from Quebec. The treatment group were men from Ontario born during the mid-1920s who did benefit from the program, while the control group were the francophone men from Quebec who failed to benefit from the program. Also, Seetman (2000) research captured a recent case of Newfoundland where one more year was added to the region’s high school in 1983-1984. The treatment group for the study was the cohort that went through high school after 1984 and had to take an additional year to get alike credentials, while the control group was either the older cohorts (who needed only 11 years to finish their primary and secondary schooling) or people in neighbouring provinces who were never subjected to this change.

Using data from the United States Labour Force Survey, Orley et al. (1999) revealed that among men who were aged between 25 and 59, university graduates earned averagely 33.3% more relative to high school graduates per working hour. Among women, the gap was found to be even wider at 48.9% (Orley et al., 1999). The study revealed that when these factors were regulated for employing regression techniques, the discrepancy increased to 39.7% for men and remains basically unchanged for women, 49%. Employing the conservative assumption that for a high school student to get a bachelor’s degree, it takes five years, these approximations imply a return within the range of 8-10% for every year of education (Orley et al., 1999). However, when standard Mincer-type regression shown above is employed, the approximated RTE is 8.5% for women and 6.6% for men (Orley et al., 1999). If these findings are taken at face value, the implication would be that the impact upon education earnings is possibly close to 10% for every year of education within Canada, a quite substantial percentage.

Further, Lemieux and Card (2001) established that the resulting increase in education of Ontario men later led to a corresponding rise in earnings. Regarding RTE, the study’s results indicated that every additional year of learning prompted by the program yielded a 10% rise in earnings. Contrarily, the standard regression approximates to education for the same cohort of men was of the order of 7%. Thus, this Canadian study suggests that standard regression approximates of the RTE devalues the causal impact of education upon earnings. Seetman (2000) also found out that the RTE that were obtained from this study were also larger compared to standard estimates.

Thus, this study has established that the causal impact of education is sufficiently large for education to be valuable and beneficial from the viewpoint of a government, society, and individual.