How does the quality of education received by children affect their
performance when they enter the labor market? This paper is an attempt to
answer this question for new entrants to the labor market over a period from
1970 to the mid 1990s. In so doing we try to pull together some strands in the
literature on both education and the labor market. We also hope to shed light on
some of the policy concerns lurking in the background of the relevant literature.
Most previous studies of the effect of school quality on the labor market,
beginning with Card and Krueger (1992), measure quality with inputs (school
expenditures, teacher-pupil ratios). We focus instead on an output measure - test
scores. Thus our work is also related to the literature on 'education production
functions,' which tries to estimate a link between education inputs and outputs.
Both the school inputs-labor market and the education production
literatures are unsettled.2 But they also stand in uncomfortable juxtaposition.
According to Eric Hanushek (1996) the central tendency of hundreds of
education production function studies is that there is no reliable connection
between school inputs and outputs. According to Card and Krueger (1996) there
is usually a positive relation between school inputs and earnings. While one or
both of these results may be wrong, 3they raise an obvious question: