Emerging Trends in The Social and Behavioral Sciences

Returns to Education in Different Labor Market Contexts

Item

Title

Returns to Education in Different Labor Market Contexts

Author

SchöEmann, Klaus

Becker, Rolf

Research Area

Social Institutions

Topic

Educational Institutions

Abstract

Labor market contexts shape the returns to education to a great deal. Beyond the known positive effects of higher education to yield higher returns to education, there is ample evidence that supports the view that labor market institutions shape the returns as well as cohort and period effects. Additional returns to education consist in faster career progression and less frequent early retirement for higher educated employees. Part of the positive returns is the close link of higher education and continuous participation in further education and training, which tends to widen the differences between high investors in education and persons with few qualifications. Occupational and industry sector contexts largely shape such differential learning and work trajectories. Temporary high demand for specific professions such as engineers, medical doctors, or care personnel create cycles of exceptionally high returns to special fields of education, but as soon as the wider economic, demographic, or institutional factors vanish, returns shrink again. Context specific skill mismatches allow above average returns for some professions, whereas they can make fields of education also obsolete. Nonmonetary returns to education such as increases in happiness, subjective well‐being, job security, or health have gained more attention in recent work. Differential returns due to labor market contexts encourage labor market agents to switch between contexts to increase returns. Job mobility, further training, and migration appear to be common strategies to ensure above average monetary and nonmonetary returns to education.

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Identifier

etrds0290

extracted text

Returns to Education in Different
Labor Market Contexts
KLAUS SCHÖEMANN and ROLF BECKER

Abstract
Labor market contexts shape the returns to education to a great deal. Beyond the
known positive effects of higher education to yield higher returns to education, there
is ample evidence that supports the view that labor market institutions shape the
returns as well as cohort and period effects. Additional returns to education consist
in faster career progression and less frequent early retirement for higher educated
employees. Part of the positive returns is the close link of higher education and continuous participation in further education and training, which tends to widen the
differences between high investors in education and persons with few qualifications.
Occupational and industry sector contexts largely shape such differential learning
and work trajectories. Temporary high demand for specific professions such as engineers, medical doctors, or care personnel create cycles of exceptionally high returns
to special fields of education, but as soon as the wider economic, demographic, or
institutional factors vanish, returns shrink again. Context specific skill mismatches
allow above average returns for some professions, whereas they can make fields
of education also obsolete. Nonmonetary returns to education such as increases in
happiness, subjective well-being, job security, or health have gained more attention
in recent work. Differential returns due to labor market contexts encourage labor
market agents to switch between contexts to increase returns. Job mobility, further
training, and migration appear to be common strategies to ensure above average
monetary and nonmonetary returns to education.

INTRODUCTION
Ever since the initial publication of the theory of human capital by Becker
(1993 [1964]), there has been a sociological reaction to this theory by numerous scholars either proposing alternative theories (Arrow, 1973; Bourdieu,
1986; Collins, 1979), or estimating different sizes of returns to education
according to industrial sectors (Stinchcombe, 1979) or labor market segments
(Dickens & Lang, 1988). The Mincer-type estimation of returns to full-time
education (Mincer, 1974) became a standard form of measuring the returns

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

to education by calculating a rate of return based on the current labor
earnings with respect to the number of full-time years spent in education.
Psacharopoulos (1985) highlights the broad range of returns to investment
in education in his global overview. Returns range from 19% (in Brazil in
1970), 20% (in Cote D’Ivoire 1986) to 3.7% (in China 1986) for a single year
of education. In the United States of America, the estimates reported around
10% in 1985 and 1990 according to the same source. The further update
(Psacharopoulos & Patrinos, 2004) demonstrated consistently positive
returns to education albeit still varying broadly between countries and
for the same country over time (Schömann, 1994). Hence, there is reason
to investigate the differential returns due to specific country contexts and
reference periods. Meanwhile, it is standard to investigate the returns to
education across birth cohorts and changing returns during the individuals’
life course (Mayer, 1997).
The topic of returns to education has moved beyond the research of returns
to full-time education in the human capital tradition following Gary Becker
and Jacob Mincer to include returns to further education and training on the
micro-level (Schömann & Becker, 1995). Further education and training yield
returns in the labor market in the form of increased earnings after completion of courses although rates of returns to investment in further training are
considerably lower than returns to full-time education.
Additionally, several authors (Becker & Hecken, 2011 for an overview)
report faster career advances, mostly for younger employees, or prolonged
employment for older employees (Blossfeld, Buchholz, & Kurz, 2011;
Fasang, Aisenbrey, & Schömann, 2013) as a form of return to investment in
education and further training. Career advancement is sufficiently different
from monetary returns to education, but may coincide in several instances.
In organizations with flat hierarchies, career advancement might not be
of high importance. However, within public administrations advancing to
higher status positions constitutes a much more plausible motivation to
invest in education and further training (Becker, 2007).
A further extension on returns to education in the context of labor markets
constitutes the inclusion of nonmonetary returns to education. Fasang,
Geerdes, and Schömann (2012) for example, include job satisfaction as an
additional outcome measure of investment in education, which incorporates
returns well beyond the traditional monetary focus. Similarly, returns to
education in terms of life satisfaction beyond satisfaction with one’s current
job plays a prominent role in additional forms of returns to education
(Kalleberg & Loscocco, 1983).

Returns to Education in Different Labor Market Contexts

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FOUNDATIONAL RESEARCH
Sociological research on returns to education in the context of labor markets
has a tradition to take context as a major determinant of inter-individual differences of returns. We distinguish the literature in contributions from a (i)
theoretical or conceptual perspective and (ii) empirically demonstrated context effects. In the 1960s and 1970s many innovative approaches were formulated as alternative theories to human capital investment. We present some of
the major advances and add recent innovations. The theoretical contributions
spurred a wealth of empirical studies both on returns to initial education and
further education and training, which we summarize in a subsequent section.
THEORY CONTRIBUTIONS
Although it is not a standard reading of human capital theory, the Mincertype estimation of returns to education contains a reference to context specific
acquisition or valorization of human capital through work experience. The
returns to education are calculated holding constant the number of years of
work experience, which persons have accumulated over their professional
career. Through this statistical procedure an independent estimate of pure
returns to education is constructed which acknowledges that different work
context and years of work experience yield different returns. The human capital rationale has been challenged due to the presence of market failure (Acemoglu & Pischke, 2001) which causes substantially higher rates of returns to
education, for example in a monopoly holding industry.
Bourdieu (1986) highlights the context effects of family social background,
academic, or in terms of socio-economic status, on the reproduction of holding a higher degree of children in a family. The returns to education for parents seem to spill over to their children to a large degree. Bourdieu’s merit
consists in shedding light on the family context and the importance of the
wider cultural background (De Graaf & Kalmijn, 2001).
The assessment of returns to education as context specific returns is supported in the view that a person’s social capital is influential in realizing
returns to education. The analyses in the field of social capital, demonstrating the strength of weak ties (Granovetter, 1973) in securing a job show that
the broader family context can largely determine access to jobs in general or
better jobs with career potentials.
Credentialism (Collins, 1979) and signaling theory (Arrow, 1973) have also
contributed alternative perspectives to support the view that returns to education are context specific in the sense that the value of a degree depends to
a relatively high amount on the reputation of the awarding institution. This
perspective on returns to education supports the view that particularly the

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

perception of an educational institution in the eyes of major labor market
actors such as firms and associations matters.
Segmentation theories (Dickens & Lang, 1985) stress the context effect of,
for example, dual labor markets, whereby the returns to education depend
largely on the labor market segment a person enters into. The primary segment offering good returns to education and career opportunities, whereas
the secondary labor market segment offers only unstable jobs which do not
reward higher education and this sector might employ larger numbers of
overeducated persons (Boll, Leppin, & Schömann, 2014).
Countries provide very specific context to achieve returns to education.
International migration of university graduates is an obvious example of this.
Medical doctors or IT-professionals trained in one country might seek higher
returns in another country due to existing shortages of highly skilled persons
in that profession (Neugart & Schömann, 2002). Green card immigration, that
is, immigration in specific occupation fields, is a well-known phenomenon of
industrialized countries. Additionally, the labor market context changes itself
not only due to industrial restructuring in longer time intervals, but is subject to rapid and very much unforeseeable changes as became obvious in the
recent financial crisis (Reinhart & Rogoff, 2009).
EMPIRICAL CONTRIBUTIONS
The controversy on theories of the returns to education and training spurred
a huge body of empirical assessments of returns to education and training.
We focus here on the monetary returns as this has yielded the largest differences in the debate. We approach the topic from a life course perspective,
which means we analyze returns first at entry into the labor market, then at
labor market and job changes, over job durations and at exit from the labor
market or retirement decisions.
Starting with the influence of institutional features on the entry into the
labor market, Shavit and Müller (1998) have demonstrated how institutional
differences like the availability of an established apprenticeship system determine the access to the labor market for youth. Returns to general education,
just as much as returns to professional education hinge on the access to a
first job. Labor market contexts understood as institutional settings with long
path dependencies shape this entry process and returns to a great deal. Entry
into the labor market specifically for graduates and their returns to education have been studied under the label of “over-education” (Boll et al., 2014).
Over-education is the educational level achieved in excess to what is necessary in the current job.
In moving from a short-term assessment of over-education to a longer-term
evaluation of over-qualification from a gender perspective, Gangl and Ziefle

Returns to Education in Different Labor Market Contexts

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(2009) demonstrated the wage penalties for motherhood to be substantial.
They estimate this penalty to be between 9% and 18% per child depending on
the country’s labor market context. The wage losses were substantially higher
for German mothers than for American and British mothers. Hence, the institutional context or society’s support for parental care shapes the returns to
education. Employers remunerate the duration of labor market experience
as a crucial element of wage determination (Mincer, 1974).
Similar in direction to the wage penalty effect of motherhood, Gangl (2004)
demonstrated the scar effect of unemployment. Results on the United States
and 12 European countries show that post-unemployment earnings are permanently lower for high-wage employees and older workers and women.
The institutional settings like a more generous unemployment benefit systems can mitigate the negative effects of unemployment on workers earnings
through more generous unemployment benefits or stricter employment protection regulation (Schömann, Rogowski, & Kruppe, 1998) which reduces
dismissals at least in the short run. The way in which labor markets, family work, or parental leave are organized in a society have a lasting effect on
monetary returns to education.
In the same realm, differences between full-time and part-time work
as they are more common in some labor markets than others continue to
impact on returns to education. Not only do part-time employees have lower
earnings, but the spread among part-timers is substantially larger. However,
the decision to work part-time seems to driven in large parts by labor market
contexts like the provision of child care by employers or availability of
public or private infrastructure for child care or elderly care in a society.
Such institutional arrangements codetermine returns to education, as they
are responsible for differential remuneration of educational qualifications
mainly between women and men, but also within gendered groups.
Labor market contexts vary systematically between public and private
sectors of the economy. Returns to education in terms of monetary returns
are generally lower in the public sector compared to the private sector
(Schömann, 1994). In terms of the career progression or status attainment,
the public sector seems to be an attractive alternative for employees. The
attractiveness of the public sector for higher educated persons seems to
persist (Becker, 2007) despite the monetary penalty. Job security in form
of higher employment protection, even after nowadays longer periods of
fixed-term entry positions in the public sector, remains an alternative nonmonetary return to education. At times of higher risk of unemployment due
to economic crises (Reinhart & Rogoff, 2009) and industrial restructuring,
this form of life course security or job stability constitutes an added value to
higher education.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Returns to further education and training have received a rather mixed
empirical assessment varying not only between labor market contexts but
different authors, based on different data sets, have found contradicting evidence. In terms of monetary returns the summary finding seems to indicate
that there are small positive returns to further training, but not necessarily
for persons who have previously been unemployed and they take at least
a medium term perspective to materialize. However, major nonmonetary
returns consist in higher job security for incumbents, that is, reducing the
risk of losing one’s current job, only specific targeted programs for the unemployed work to bring them back into a job. Schömann and Becker (2002)
demonstrated differences according to the regional labor market conditions
for East and West Germany.
AREAS OF CUTTING-EDGE WORK: CURRENT CHALLENGES
In this section, we want to highlight a few areas where important fields of
research have been identified. We focus on areas that have been addressed
only recently and in most instances, only some first results are available
which address major current challenges in terms of research as well as policy
issues.
The first issue is the adequate distinction of context effects to be due to
age, period, or cohort effects (Schömann & Becker, 1995). The monetary or
nonmonetary returns to education are dependent on specific time periods
most easily identified as economic cycles and their impact on, for example,
the returns to education for persons graduating in an economic recession or
due to societal restructuring like the discontinuity of the German Democratic
Republic. Some sociologists even label such periods as a “lost” or disadvantaged generation at a specific historic period of time which is expected to
have lasting effects on the person’s life course (Diewald, Goedicke, & Mayer,
2006).
Cohort effects may consist in cohort effects of large cohort sizes graduating
at the same time from high schools and then experiencing continued crowding in the labor market for their entire working career, as it was demonstrated
so forcefully for the baby boom generation of the 1960s and 1970s. Beyond
cohorts of graduates there seems to be mainly evidence from sociology that
cohorts due to year of birth have an impact on future returns to education.
This indicates that in addition to individual education attainment belonging
to a group that shares the same context like the birth cohort has measurable
effects on labor market success.
In addition, the propensity to take risks is one of the elements, which has
received higher attention recently (Siarov, 2012). There is evidence that the
basic feature to be more ready to accept labor market risks pays off in forms

Returns to Education in Different Labor Market Contexts

7

of returns. Men appear to be also more willing to enter into risky areas of
education and more risky jobs, but the labor market is likely to reward such
risk taking with a higher wage premium. The early analyses of distinguishing
between jobs in the public versus the private sector of the economy have
probably identified a similar outcome, although not being able to address
the underlying causal or behavioral mechanism.
The returns to education depend on skill matches or mismatches in the
labor market. There are fields of education and professional training that
are, either temporarily or even over extended periods of time, in over-supply
or under-supply on the labor market. Returns to education are expected to
reflect such a disequilibrium on the labor market, particularly if it turns into
a persistent feature of the labor market. A great deal of labor market studies
have analyzed returns only in a general fashion for all graduates of professional education or university-level education, but the returns to specific
fields of study have only recently become more feasible due to better provision of large size representative samples of the population to estimate such
effects (Stark, 2007). Such studies can trace the returns to specific professions,
such as engineers or medical doctors, that have high education costs, but also
the potential to yield persistent above average monetary returns to education
(Neugart & Schömann, 2002).
Some professions seem to be subject to specific “hog-cycles” of employment and earnings, which means in periods of high demand and high wages
many students are attracted to this field. Once these students graduate after
about 4 years with a degree from universities in one country the labor market
demand for these graduates might have changed drastically. Where a shortage has occurred before 4 years, later we might find already an oversupply
which the labor market is not capable to absorb in the short run. Hence, careful assessment of the overall aggregate labor market situation is indicated in
addition to own individual preferences for a field of study.
Among the current challenges is the continuous increase in longitudinal
data which allows not only to look into the returns to education with a
snap-shop perspective but to study the unfolding of careers. Some first
evidence suggests that there are indeed very different trajectories of positive
feedback loops with higher education and continuous further training,
much in line what is coined as lifelong learning trajectories, and stagnant
trajectories with low levels of general education and hardly any participation
in further training (Schömann & Becker, 2002). Whereas the former type of
trajectory can reap high returns on education the latter ones fail to secure
such returns. It remains to be investigated to what extent these very different
education and earnings trajectories are due to a person’s characteristics,
self-selection into education and careers or, whether teacher and employer
selection of persons for higher education and job careers are the driving

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

mechanism. Evidence on returns to education of second generation migrants
suggests that a large share of the variance in returns is not explained through
individual differences in human capital endowment.
Returns to education while staying on the same job for longer durations
indicate that higher human capital allows persons to enter earnings trajectories that grow further apart as time continues (Becker & Schömann, 1996).
Better general education allows persons to (self-) select into more favorable
labor market contexts. For example, context effects of high unemployment
regions, which depress monetary returns, are more pertinent to lower and
middle level qualified persons as they find geographic and job mobility more
difficult to achieve. In the same vein, higher general education allows persons to shift between industrial sectors more easily compared to persons with
sector-specific professional skills.
Nonmonetary returns to education are also rather context specific. In
analyses of three major components of job satisfaction (Fasang et al., 2012)
show that lower qualified persons are less satisfied with their work-life
balance in the European Union. Both the lowest and the highest education
groups are less satisfied with their current work contract than middle-level
education groups. No significant differences exist for the satisfaction with
career prospects. This probably indicates that different education groups
across European labor markets have different career orientations. This study
was able to demonstrate the impact of welfare regimes as an “ensemble” of
regulations defining the labor market context.
KEY ISSUES FOR FUTURE RESEARCH
Among the key issue for future research, we identify the difficult to disentangle process of sorting into education tracks and ensuing labor market
careers. Labor market contexts and institutional arrangements create welfare and labor market regimes, which structure careers. General education
has some promise to allow persons to escape from strong context effects,
but empirically this works only to a limited extent. Demonstrating “escape
routes” and evaluating best practice that allows to impact career trajectories
in a sustained fashion will remain high on the agenda. Further progress is
needed to disentangle in a more precise fashion the self-selection into careers
from the structural effects as careers evolve over longer durations or even the
entire life course well into retirement. In short, self-selection or other selection
processes vary according to the context.
More research is needed to address the phenomenon of persons switching between contexts and to find out what this means for returns. Switching
between contexts may mean to grow up in one country and its specific labor
market context, but then to move to a different labor market. There are studies

Returns to Education in Different Labor Market Contexts

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that address such labor market changing behavior as international migration
or brain drain but considering return migration and moves within the European Union, but between countries is hardly researched with respect to labor
market outcomes. Transnational careers and migrant workers are an increasing group of people, yet we have little evidence to support policy making in
the area.
The research in this area is dominated by supply side arguments that
individuals’ characteristics are the primary determinant of returns, yet the
demand side of the labor market has a crucial role to play as well. Not only
labor market segments and the size of firms provide very specific context
but also within firms and teams’ labor organization in firms and the role of
supervisors create unique contexts (Baron, 2011). Personality traits as well
might be co-influenced by family background if we subscribe to Bourdieu’s
theoretical statement that “habitus” matters just as much as own educational
credentials.
In the current labor market, crisis in many countries we witness a revival of
occupational (context specific) skills to secure jobs. This is primarily affecting
young labor market entrants, but it is not restricted to them. Apprenticeship
systems provide short-term solutions to such occupational skill gaps, but
we lack evidence that supports the long-term potential of such educational
tracks to outperform the returns to general education qualifications.
The returns to education are broader in scope than just monetary returns.
However, the returns in terms of job satisfaction (Allen & Van der Velden,
2001), happiness or self-realization seems to be underexplored. Post materialism might require research to shed more light on nonmonetary returns to
education and further training. Hereby we return to basic questions, whether
education is solely to be seen as an investment expected to yield monetary
returns. Returns such as higher job or life satisfaction due to higher education
are a topic with continued relevance.
Finally, we would like to emphasize that the long lasting educational
expansion since the 1950s and 1960s in most industrialized countries has
not resulted in decreasing returns to education across the life course and in
different labor markets (Müller & Jacob, 2008). In contrast to the hypotheses,
which claim that “inflation of credentials,” “individualization of educational
careers and work biographies,” or “de-standardization of transitions from
school to work” have reduced returns there is a little evidence to support
such claims. The empirical evidence suggests that in modern societies,
education and social capital are still the most important resources to achieve
returns to education in the labor market. Even independent of the labor
market context, significant positive returns to education and further training
can be achieved in both monetary and nonmonetary fashion. Different
contexts only tend to widen the spread of such returns.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

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individual choice (PhD Thesis). Jacobs University Bremen.
Stark, A. (2007). Which fields pay, which fields don’t? An examination of the returns to
university education in Canada by detailed field of study. Ministry of Finance Canada.
Working Paper 2007–03.
Stinchcombe, A. S. (1979). Social mobility and the industrial labor process. Acta Sociologica, 22, 217–245.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

FURTHER READING
Hadjar, A., & Becker, R. (Eds.) (2009). Expected and unexpected consequences of the educational expansion in Europe and the US. Bern, Switzerland: Haupt.
Kogan, I., Noelke, C., & Gebel, M. (Eds.) (2011). Making the transition: Education and
labor market entry in central and eastern Europe. Palo Alto, CA: Stanford University
Press.
Mayer, K. U., & Solga, H. (Eds.) (2008). Skill formation: Interdisciplinary and crossnational perspectives. New York, NY: Cambridge University Press.
Müller, W., & Gangl, M. (Eds.) (2003). Transitions from education to work in Europe.
The integration of youth into EU labour markets. Oxford, England: Oxford University
Press.
Schömann, K., & O’Connell, P. J. (Eds.) (2002). Education, training and employment
dynamics: Transitional labour markets in the European Union. Cheltenham, England:
Edward Elgar.

KLAUS SCHÖEMANN SHORT BIOGRAPHY
Klaus Schöemann graduated from the University of Wales College Cardiff
and completed his PhD at the Free University of Berlin in 1992. He worked
at the UNESCO Office of Statics on education statistics and at the Social
Science Research Center (WZB) in Berlin on employment and labour market policies. He has been a Consultant to the ILO, OECD as well as to the
national employment and education ministries. For the European Union, he
coordinated a large European research project on transitional labour markets. Since May 2014 he is head of programme at the Deutsches Institut für
Erwachsenenbildung—Leibniz Institute for Lifelong Learning and Professor
of Sociology at Jacobs University Bremen.
ROLF BECKER SHORT BIOGRAPHY
Rolf Becker graduated from the University of Mannheim and completed his PhD at the Free University of Berlin in 1991. He worked at
the Max Planck Institute for Human Development and Dresden University of Technology (Habilitation) on life courses, education, labor market
research, and social stratification. In the last years he has published
several books on social inequality of education, educational expansion,
and sociology of education. Professor Becker is chair and director of the
department of sociology of education at the University of Bern (Switzerland).
http://edu.unibe.ch/content/abs/mitarbeitende_abs/prof_dr_rolf_becker/
index_eng.html

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and Claudia Buchmann
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(Sociology), Herman G. van de Werfhorst



Returns to Education in Different
Labor Market Contexts
KLAUS SCHÖEMANN and ROLF BECKER

Abstract
Labor market contexts shape the returns to education to a great deal. Beyond the
known positive effects of higher education to yield higher returns to education, there
is ample evidence that supports the view that labor market institutions shape the
returns as well as cohort and period effects. Additional returns to education consist
in faster career progression and less frequent early retirement for higher educated
employees. Part of the positive returns is the close link of higher education and continuous participation in further education and training, which tends to widen the
differences between high investors in education and persons with few qualifications.
Occupational and industry sector contexts largely shape such differential learning
and work trajectories. Temporary high demand for specific professions such as engineers, medical doctors, or care personnel create cycles of exceptionally high returns
to special fields of education, but as soon as the wider economic, demographic, or
institutional factors vanish, returns shrink again. Context specific skill mismatches
allow above average returns for some professions, whereas they can make fields
of education also obsolete. Nonmonetary returns to education such as increases in
happiness, subjective well-being, job security, or health have gained more attention
in recent work. Differential returns due to labor market contexts encourage labor
market agents to switch between contexts to increase returns. Job mobility, further
training, and migration appear to be common strategies to ensure above average
monetary and nonmonetary returns to education.

INTRODUCTION
Ever since the initial publication of the theory of human capital by Becker
(1993 [1964]), there has been a sociological reaction to this theory by numerous scholars either proposing alternative theories (Arrow, 1973; Bourdieu,
1986; Collins, 1979), or estimating different sizes of returns to education
according to industrial sectors (Stinchcombe, 1979) or labor market segments
(Dickens & Lang, 1988). The Mincer-type estimation of returns to full-time
education (Mincer, 1974) became a standard form of measuring the returns

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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to education by calculating a rate of return based on the current labor
earnings with respect to the number of full-time years spent in education.
Psacharopoulos (1985) highlights the broad range of returns to investment
in education in his global overview. Returns range from 19% (in Brazil in
1970), 20% (in Cote D’Ivoire 1986) to 3.7% (in China 1986) for a single year
of education. In the United States of America, the estimates reported around
10% in 1985 and 1990 according to the same source. The further update
(Psacharopoulos & Patrinos, 2004) demonstrated consistently positive
returns to education albeit still varying broadly between countries and
for the same country over time (Schömann, 1994). Hence, there is reason
to investigate the differential returns due to specific country contexts and
reference periods. Meanwhile, it is standard to investigate the returns to
education across birth cohorts and changing returns during the individuals’
life course (Mayer, 1997).
The topic of returns to education has moved beyond the research of returns
to full-time education in the human capital tradition following Gary Becker
and Jacob Mincer to include returns to further education and training on the
micro-level (Schömann & Becker, 1995). Further education and training yield
returns in the labor market in the form of increased earnings after completion of courses although rates of returns to investment in further training are
considerably lower than returns to full-time education.
Additionally, several authors (Becker & Hecken, 2011 for an overview)
report faster career advances, mostly for younger employees, or prolonged
employment for older employees (Blossfeld, Buchholz, & Kurz, 2011;
Fasang, Aisenbrey, & Schömann, 2013) as a form of return to investment in
education and further training. Career advancement is sufficiently different
from monetary returns to education, but may coincide in several instances.
In organizations with flat hierarchies, career advancement might not be
of high importance. However, within public administrations advancing to
higher status positions constitutes a much more plausible motivation to
invest in education and further training (Becker, 2007).
A further extension on returns to education in the context of labor markets
constitutes the inclusion of nonmonetary returns to education. Fasang,
Geerdes, and Schömann (2012) for example, include job satisfaction as an
additional outcome measure of investment in education, which incorporates
returns well beyond the traditional monetary focus. Similarly, returns to
education in terms of life satisfaction beyond satisfaction with one’s current
job plays a prominent role in additional forms of returns to education
(Kalleberg & Loscocco, 1983).

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3

FOUNDATIONAL RESEARCH
Sociological research on returns to education in the context of labor markets
has a tradition to take context as a major determinant of inter-individual differences of returns. We distinguish the literature in contributions from a (i)
theoretical or conceptual perspective and (ii) empirically demonstrated context effects. In the 1960s and 1970s many innovative approaches were formulated as alternative theories to human capital investment. We present some of
the major advances and add recent innovations. The theoretical contributions
spurred a wealth of empirical studies both on returns to initial education and
further education and training, which we summarize in a subsequent section.
THEORY CONTRIBUTIONS
Although it is not a standard reading of human capital theory, the Mincertype estimation of returns to education contains a reference to context specific
acquisition or valorization of human capital through work experience. The
returns to education are calculated holding constant the number of years of
work experience, which persons have accumulated over their professional
career. Through this statistical procedure an independent estimate of pure
returns to education is constructed which acknowledges that different work
context and years of work experience yield different returns. The human capital rationale has been challenged due to the presence of market failure (Acemoglu & Pischke, 2001) which causes substantially higher rates of returns to
education, for example in a monopoly holding industry.
Bourdieu (1986) highlights the context effects of family social background,
academic, or in terms of socio-economic status, on the reproduction of holding a higher degree of children in a family. The returns to education for parents seem to spill over to their children to a large degree. Bourdieu’s merit
consists in shedding light on the family context and the importance of the
wider cultural background (De Graaf & Kalmijn, 2001).
The assessment of returns to education as context specific returns is supported in the view that a person’s social capital is influential in realizing
returns to education. The analyses in the field of social capital, demonstrating the strength of weak ties (Granovetter, 1973) in securing a job show that
the broader family context can largely determine access to jobs in general or
better jobs with career potentials.
Credentialism (Collins, 1979) and signaling theory (Arrow, 1973) have also
contributed alternative perspectives to support the view that returns to education are context specific in the sense that the value of a degree depends to
a relatively high amount on the reputation of the awarding institution. This
perspective on returns to education supports the view that particularly the

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

perception of an educational institution in the eyes of major labor market
actors such as firms and associations matters.
Segmentation theories (Dickens & Lang, 1985) stress the context effect of,
for example, dual labor markets, whereby the returns to education depend
largely on the labor market segment a person enters into. The primary segment offering good returns to education and career opportunities, whereas
the secondary labor market segment offers only unstable jobs which do not
reward higher education and this sector might employ larger numbers of
overeducated persons (Boll, Leppin, & Schömann, 2014).
Countries provide very specific context to achieve returns to education.
International migration of university graduates is an obvious example of this.
Medical doctors or IT-professionals trained in one country might seek higher
returns in another country due to existing shortages of highly skilled persons
in that profession (Neugart & Schömann, 2002). Green card immigration, that
is, immigration in specific occupation fields, is a well-known phenomenon of
industrialized countries. Additionally, the labor market context changes itself
not only due to industrial restructuring in longer time intervals, but is subject to rapid and very much unforeseeable changes as became obvious in the
recent financial crisis (Reinhart & Rogoff, 2009).
EMPIRICAL CONTRIBUTIONS
The controversy on theories of the returns to education and training spurred
a huge body of empirical assessments of returns to education and training.
We focus here on the monetary returns as this has yielded the largest differences in the debate. We approach the topic from a life course perspective,
which means we analyze returns first at entry into the labor market, then at
labor market and job changes, over job durations and at exit from the labor
market or retirement decisions.
Starting with the influence of institutional features on the entry into the
labor market, Shavit and Müller (1998) have demonstrated how institutional
differences like the availability of an established apprenticeship system determine the access to the labor market for youth. Returns to general education,
just as much as returns to professional education hinge on the access to a
first job. Labor market contexts understood as institutional settings with long
path dependencies shape this entry process and returns to a great deal. Entry
into the labor market specifically for graduates and their returns to education have been studied under the label of “over-education” (Boll et al., 2014).
Over-education is the educational level achieved in excess to what is necessary in the current job.
In moving from a short-term assessment of over-education to a longer-term
evaluation of over-qualification from a gender perspective, Gangl and Ziefle

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(2009) demonstrated the wage penalties for motherhood to be substantial.
They estimate this penalty to be between 9% and 18% per child depending on
the country’s labor market context. The wage losses were substantially higher
for German mothers than for American and British mothers. Hence, the institutional context or society’s support for parental care shapes the returns to
education. Employers remunerate the duration of labor market experience
as a crucial element of wage determination (Mincer, 1974).
Similar in direction to the wage penalty effect of motherhood, Gangl (2004)
demonstrated the scar effect of unemployment. Results on the United States
and 12 European countries show that post-unemployment earnings are permanently lower for high-wage employees and older workers and women.
The institutional settings like a more generous unemployment benefit systems can mitigate the negative effects of unemployment on workers earnings
through more generous unemployment benefits or stricter employment protection regulation (Schömann, Rogowski, & Kruppe, 1998) which reduces
dismissals at least in the short run. The way in which labor markets, family work, or parental leave are organized in a society have a lasting effect on
monetary returns to education.
In the same realm, differences between full-time and part-time work
as they are more common in some labor markets than others continue to
impact on returns to education. Not only do part-time employees have lower
earnings, but the spread among part-timers is substantially larger. However,
the decision to work part-time seems to driven in large parts by labor market
contexts like the provision of child care by employers or availability of
public or private infrastructure for child care or elderly care in a society.
Such institutional arrangements codetermine returns to education, as they
are responsible for differential remuneration of educational qualifications
mainly between women and men, but also within gendered groups.
Labor market contexts vary systematically between public and private
sectors of the economy. Returns to education in terms of monetary returns
are generally lower in the public sector compared to the private sector
(Schömann, 1994). In terms of the career progression or status attainment,
the public sector seems to be an attractive alternative for employees. The
attractiveness of the public sector for higher educated persons seems to
persist (Becker, 2007) despite the monetary penalty. Job security in form
of higher employment protection, even after nowadays longer periods of
fixed-term entry positions in the public sector, remains an alternative nonmonetary return to education. At times of higher risk of unemployment due
to economic crises (Reinhart & Rogoff, 2009) and industrial restructuring,
this form of life course security or job stability constitutes an added value to
higher education.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Returns to further education and training have received a rather mixed
empirical assessment varying not only between labor market contexts but
different authors, based on different data sets, have found contradicting evidence. In terms of monetary returns the summary finding seems to indicate
that there are small positive returns to further training, but not necessarily
for persons who have previously been unemployed and they take at least
a medium term perspective to materialize. However, major nonmonetary
returns consist in higher job security for incumbents, that is, reducing the
risk of losing one’s current job, only specific targeted programs for the unemployed work to bring them back into a job. Schömann and Becker (2002)
demonstrated differences according to the regional labor market conditions
for East and West Germany.
AREAS OF CUTTING-EDGE WORK: CURRENT CHALLENGES
In this section, we want to highlight a few areas where important fields of
research have been identified. We focus on areas that have been addressed
only recently and in most instances, only some first results are available
which address major current challenges in terms of research as well as policy
issues.
The first issue is the adequate distinction of context effects to be due to
age, period, or cohort effects (Schömann & Becker, 1995). The monetary or
nonmonetary returns to education are dependent on specific time periods
most easily identified as economic cycles and their impact on, for example,
the returns to education for persons graduating in an economic recession or
due to societal restructuring like the discontinuity of the German Democratic
Republic. Some sociologists even label such periods as a “lost” or disadvantaged generation at a specific historic period of time which is expected to
have lasting effects on the person’s life course (Diewald, Goedicke, & Mayer,
2006).
Cohort effects may consist in cohort effects of large cohort sizes graduating
at the same time from high schools and then experiencing continued crowding in the labor market for their entire working career, as it was demonstrated
so forcefully for the baby boom generation of the 1960s and 1970s. Beyond
cohorts of graduates there seems to be mainly evidence from sociology that
cohorts due to year of birth have an impact on future returns to education.
This indicates that in addition to individual education attainment belonging
to a group that shares the same context like the birth cohort has measurable
effects on labor market success.
In addition, the propensity to take risks is one of the elements, which has
received higher attention recently (Siarov, 2012). There is evidence that the
basic feature to be more ready to accept labor market risks pays off in forms

Returns to Education in Different Labor Market Contexts

7

of returns. Men appear to be also more willing to enter into risky areas of
education and more risky jobs, but the labor market is likely to reward such
risk taking with a higher wage premium. The early analyses of distinguishing
between jobs in the public versus the private sector of the economy have
probably identified a similar outcome, although not being able to address
the underlying causal or behavioral mechanism.
The returns to education depend on skill matches or mismatches in the
labor market. There are fields of education and professional training that
are, either temporarily or even over extended periods of time, in over-supply
or under-supply on the labor market. Returns to education are expected to
reflect such a disequilibrium on the labor market, particularly if it turns into
a persistent feature of the labor market. A great deal of labor market studies
have analyzed returns only in a general fashion for all graduates of professional education or university-level education, but the returns to specific
fields of study have only recently become more feasible due to better provision of large size representative samples of the population to estimate such
effects (Stark, 2007). Such studies can trace the returns to specific professions,
such as engineers or medical doctors, that have high education costs, but also
the potential to yield persistent above average monetary returns to education
(Neugart & Schömann, 2002).
Some professions seem to be subject to specific “hog-cycles” of employment and earnings, which means in periods of high demand and high wages
many students are attracted to this field. Once these students graduate after
about 4 years with a degree from universities in one country the labor market
demand for these graduates might have changed drastically. Where a shortage has occurred before 4 years, later we might find already an oversupply
which the labor market is not capable to absorb in the short run. Hence, careful assessment of the overall aggregate labor market situation is indicated in
addition to own individual preferences for a field of study.
Among the current challenges is the continuous increase in longitudinal
data which allows not only to look into the returns to education with a
snap-shop perspective but to study the unfolding of careers. Some first
evidence suggests that there are indeed very different trajectories of positive
feedback loops with higher education and continuous further training,
much in line what is coined as lifelong learning trajectories, and stagnant
trajectories with low levels of general education and hardly any participation
in further training (Schömann & Becker, 2002). Whereas the former type of
trajectory can reap high returns on education the latter ones fail to secure
such returns. It remains to be investigated to what extent these very different
education and earnings trajectories are due to a person’s characteristics,
self-selection into education and careers or, whether teacher and employer
selection of persons for higher education and job careers are the driving

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

mechanism. Evidence on returns to education of second generation migrants
suggests that a large share of the variance in returns is not explained through
individual differences in human capital endowment.
Returns to education while staying on the same job for longer durations
indicate that higher human capital allows persons to enter earnings trajectories that grow further apart as time continues (Becker & Schömann, 1996).
Better general education allows persons to (self-) select into more favorable
labor market contexts. For example, context effects of high unemployment
regions, which depress monetary returns, are more pertinent to lower and
middle level qualified persons as they find geographic and job mobility more
difficult to achieve. In the same vein, higher general education allows persons to shift between industrial sectors more easily compared to persons with
sector-specific professional skills.
Nonmonetary returns to education are also rather context specific. In
analyses of three major components of job satisfaction (Fasang et al., 2012)
show that lower qualified persons are less satisfied with their work-life
balance in the European Union. Both the lowest and the highest education
groups are less satisfied with their current work contract than middle-level
education groups. No significant differences exist for the satisfaction with
career prospects. This probably indicates that different education groups
across European labor markets have different career orientations. This study
was able to demonstrate the impact of welfare regimes as an “ensemble” of
regulations defining the labor market context.
KEY ISSUES FOR FUTURE RESEARCH
Among the key issue for future research, we identify the difficult to disentangle process of sorting into education tracks and ensuing labor market
careers. Labor market contexts and institutional arrangements create welfare and labor market regimes, which structure careers. General education
has some promise to allow persons to escape from strong context effects,
but empirically this works only to a limited extent. Demonstrating “escape
routes” and evaluating best practice that allows to impact career trajectories
in a sustained fashion will remain high on the agenda. Further progress is
needed to disentangle in a more precise fashion the self-selection into careers
from the structural effects as careers evolve over longer durations or even the
entire life course well into retirement. In short, self-selection or other selection
processes vary according to the context.
More research is needed to address the phenomenon of persons switching between contexts and to find out what this means for returns. Switching
between contexts may mean to grow up in one country and its specific labor
market context, but then to move to a different labor market. There are studies

Returns to Education in Different Labor Market Contexts

9

that address such labor market changing behavior as international migration
or brain drain but considering return migration and moves within the European Union, but between countries is hardly researched with respect to labor
market outcomes. Transnational careers and migrant workers are an increasing group of people, yet we have little evidence to support policy making in
the area.
The research in this area is dominated by supply side arguments that
individuals’ characteristics are the primary determinant of returns, yet the
demand side of the labor market has a crucial role to play as well. Not only
labor market segments and the size of firms provide very specific context
but also within firms and teams’ labor organization in firms and the role of
supervisors create unique contexts (Baron, 2011). Personality traits as well
might be co-influenced by family background if we subscribe to Bourdieu’s
theoretical statement that “habitus” matters just as much as own educational
credentials.
In the current labor market, crisis in many countries we witness a revival of
occupational (context specific) skills to secure jobs. This is primarily affecting
young labor market entrants, but it is not restricted to them. Apprenticeship
systems provide short-term solutions to such occupational skill gaps, but
we lack evidence that supports the long-term potential of such educational
tracks to outperform the returns to general education qualifications.
The returns to education are broader in scope than just monetary returns.
However, the returns in terms of job satisfaction (Allen & Van der Velden,
2001), happiness or self-realization seems to be underexplored. Post materialism might require research to shed more light on nonmonetary returns to
education and further training. Hereby we return to basic questions, whether
education is solely to be seen as an investment expected to yield monetary
returns. Returns such as higher job or life satisfaction due to higher education
are a topic with continued relevance.
Finally, we would like to emphasize that the long lasting educational
expansion since the 1950s and 1960s in most industrialized countries has
not resulted in decreasing returns to education across the life course and in
different labor markets (Müller & Jacob, 2008). In contrast to the hypotheses,
which claim that “inflation of credentials,” “individualization of educational
careers and work biographies,” or “de-standardization of transitions from
school to work” have reduced returns there is a little evidence to support
such claims. The empirical evidence suggests that in modern societies,
education and social capital are still the most important resources to achieve
returns to education in the labor market. Even independent of the labor
market context, significant positive returns to education and further training
can be achieved in both monetary and nonmonetary fashion. Different
contexts only tend to widen the spread of such returns.

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Psacharopoulos, G. (1985). Returns to education: A further international update and
implications. Journal of Human Resources, 20(4), 583–604.
Psacharopoulos, G., & Patrinos, H. A. (2004). Returns to investment in education: A
further update. Education Economics, 12(2), 111–134.
Reinhart, C. M., & Rogoff, K. S. (2009). This time is different: Eight centuries of financial
folly. Princeton, NJ: Princeton University Press.
Schömann, K. (1994). The dynamics of labor earnings over the life course. A comparative
and longitudinal analysis of Germany and Poland. Berlin, Germany: edition sigma.
Schömann, K., Rogowski, R., & Kruppe, T. (1998). Labour market efficiency in the European Union: Employment protection and fixed-term contracts. New York, NY: Routledge.
Schömann, K., & Becker, R. (2002). A long-term perspective on the effects of training in Germany. In K. Schömann & P. J. O’Connell (Eds.), Education, training
and employment dynamics: Transitional labour markets in the European Union (pp.
153–185). Cheltenham, England: Edward Elgar.
Schömann, K., & Becker, R. (1995). Participation in further education over the life
course. European Sociological Review, 11, 187–208.
Shavit, Y., & Müller, W. (Eds.) (1998). From school to work. Oxford, England: Clarendon
Press.
Siarov, L. (2012). The economics of lifelong learning and skill formation: Risk, return and
individual choice (PhD Thesis). Jacobs University Bremen.
Stark, A. (2007). Which fields pay, which fields don’t? An examination of the returns to
university education in Canada by detailed field of study. Ministry of Finance Canada.
Working Paper 2007–03.
Stinchcombe, A. S. (1979). Social mobility and the industrial labor process. Acta Sociologica, 22, 217–245.

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FURTHER READING
Hadjar, A., & Becker, R. (Eds.) (2009). Expected and unexpected consequences of the educational expansion in Europe and the US. Bern, Switzerland: Haupt.
Kogan, I., Noelke, C., & Gebel, M. (Eds.) (2011). Making the transition: Education and
labor market entry in central and eastern Europe. Palo Alto, CA: Stanford University
Press.
Mayer, K. U., & Solga, H. (Eds.) (2008). Skill formation: Interdisciplinary and crossnational perspectives. New York, NY: Cambridge University Press.
Müller, W., & Gangl, M. (Eds.) (2003). Transitions from education to work in Europe.
The integration of youth into EU labour markets. Oxford, England: Oxford University
Press.
Schömann, K., & O’Connell, P. J. (Eds.) (2002). Education, training and employment
dynamics: Transitional labour markets in the European Union. Cheltenham, England:
Edward Elgar.

KLAUS SCHÖEMANN SHORT BIOGRAPHY
Klaus Schöemann graduated from the University of Wales College Cardiff
and completed his PhD at the Free University of Berlin in 1992. He worked
at the UNESCO Office of Statics on education statistics and at the Social
Science Research Center (WZB) in Berlin on employment and labour market policies. He has been a Consultant to the ILO, OECD as well as to the
national employment and education ministries. For the European Union, he
coordinated a large European research project on transitional labour markets. Since May 2014 he is head of programme at the Deutsches Institut für
Erwachsenenbildung—Leibniz Institute for Lifelong Learning and Professor
of Sociology at Jacobs University Bremen.
ROLF BECKER SHORT BIOGRAPHY
Rolf Becker graduated from the University of Mannheim and completed his PhD at the Free University of Berlin in 1991. He worked at
the Max Planck Institute for Human Development and Dresden University of Technology (Habilitation) on life courses, education, labor market
research, and social stratification. In the last years he has published
several books on social inequality of education, educational expansion,
and sociology of education. Professor Becker is chair and director of the
department of sociology of education at the University of Bern (Switzerland).
http://edu.unibe.ch/content/abs/mitarbeitende_abs/prof_dr_rolf_becker/
index_eng.html

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Returns to Education in Different
Labor Market Contexts
KLAUS SCHÖEMANN and ROLF BECKER

Abstract
Labor market contexts shape the returns to education to a great deal. Beyond the
known positive effects of higher education to yield higher returns to education, there
is ample evidence that supports the view that labor market institutions shape the
returns as well as cohort and period effects. Additional returns to education consist
in faster career progression and less frequent early retirement for higher educated
employees. Part of the positive returns is the close link of higher education and continuous participation in further education and training, which tends to widen the
differences between high investors in education and persons with few qualifications.
Occupational and industry sector contexts largely shape such differential learning
and work trajectories. Temporary high demand for specific professions such as engineers, medical doctors, or care personnel create cycles of exceptionally high returns
to special fields of education, but as soon as the wider economic, demographic, or
institutional factors vanish, returns shrink again. Context specific skill mismatches
allow above average returns for some professions, whereas they can make fields
of education also obsolete. Nonmonetary returns to education such as increases in
happiness, subjective well-being, job security, or health have gained more attention
in recent work. Differential returns due to labor market contexts encourage labor
market agents to switch between contexts to increase returns. Job mobility, further
training, and migration appear to be common strategies to ensure above average
monetary and nonmonetary returns to education.

INTRODUCTION
Ever since the initial publication of the theory of human capital by Becker
(1993 [1964]), there has been a sociological reaction to this theory by numerous scholars either proposing alternative theories (Arrow, 1973; Bourdieu,
1986; Collins, 1979), or estimating different sizes of returns to education
according to industrial sectors (Stinchcombe, 1979) or labor market segments
(Dickens & Lang, 1988). The Mincer-type estimation of returns to full-time
education (Mincer, 1974) became a standard form of measuring the returns

Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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to education by calculating a rate of return based on the current labor
earnings with respect to the number of full-time years spent in education.
Psacharopoulos (1985) highlights the broad range of returns to investment
in education in his global overview. Returns range from 19% (in Brazil in
1970), 20% (in Cote D’Ivoire 1986) to 3.7% (in China 1986) for a single year
of education. In the United States of America, the estimates reported around
10% in 1985 and 1990 according to the same source. The further update
(Psacharopoulos & Patrinos, 2004) demonstrated consistently positive
returns to education albeit still varying broadly between countries and
for the same country over time (Schömann, 1994). Hence, there is reason
to investigate the differential returns due to specific country contexts and
reference periods. Meanwhile, it is standard to investigate the returns to
education across birth cohorts and changing returns during the individuals’
life course (Mayer, 1997).
The topic of returns to education has moved beyond the research of returns
to full-time education in the human capital tradition following Gary Becker
and Jacob Mincer to include returns to further education and training on the
micro-level (Schömann & Becker, 1995). Further education and training yield
returns in the labor market in the form of increased earnings after completion of courses although rates of returns to investment in further training are
considerably lower than returns to full-time education.
Additionally, several authors (Becker & Hecken, 2011 for an overview)
report faster career advances, mostly for younger employees, or prolonged
employment for older employees (Blossfeld, Buchholz, & Kurz, 2011;
Fasang, Aisenbrey, & Schömann, 2013) as a form of return to investment in
education and further training. Career advancement is sufficiently different
from monetary returns to education, but may coincide in several instances.
In organizations with flat hierarchies, career advancement might not be
of high importance. However, within public administrations advancing to
higher status positions constitutes a much more plausible motivation to
invest in education and further training (Becker, 2007).
A further extension on returns to education in the context of labor markets
constitutes the inclusion of nonmonetary returns to education. Fasang,
Geerdes, and Schömann (2012) for example, include job satisfaction as an
additional outcome measure of investment in education, which incorporates
returns well beyond the traditional monetary focus. Similarly, returns to
education in terms of life satisfaction beyond satisfaction with one’s current
job plays a prominent role in additional forms of returns to education
(Kalleberg & Loscocco, 1983).

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3

FOUNDATIONAL RESEARCH
Sociological research on returns to education in the context of labor markets
has a tradition to take context as a major determinant of inter-individual differences of returns. We distinguish the literature in contributions from a (i)
theoretical or conceptual perspective and (ii) empirically demonstrated context effects. In the 1960s and 1970s many innovative approaches were formulated as alternative theories to human capital investment. We present some of
the major advances and add recent innovations. The theoretical contributions
spurred a wealth of empirical studies both on returns to initial education and
further education and training, which we summarize in a subsequent section.
THEORY CONTRIBUTIONS
Although it is not a standard reading of human capital theory, the Mincertype estimation of returns to education contains a reference to context specific
acquisition or valorization of human capital through work experience. The
returns to education are calculated holding constant the number of years of
work experience, which persons have accumulated over their professional
career. Through this statistical procedure an independent estimate of pure
returns to education is constructed which acknowledges that different work
context and years of work experience yield different returns. The human capital rationale has been challenged due to the presence of market failure (Acemoglu & Pischke, 2001) which causes substantially higher rates of returns to
education, for example in a monopoly holding industry.
Bourdieu (1986) highlights the context effects of family social background,
academic, or in terms of socio-economic status, on the reproduction of holding a higher degree of children in a family. The returns to education for parents seem to spill over to their children to a large degree. Bourdieu’s merit
consists in shedding light on the family context and the importance of the
wider cultural background (De Graaf & Kalmijn, 2001).
The assessment of returns to education as context specific returns is supported in the view that a person’s social capital is influential in realizing
returns to education. The analyses in the field of social capital, demonstrating the strength of weak ties (Granovetter, 1973) in securing a job show that
the broader family context can largely determine access to jobs in general or
better jobs with career potentials.
Credentialism (Collins, 1979) and signaling theory (Arrow, 1973) have also
contributed alternative perspectives to support the view that returns to education are context specific in the sense that the value of a degree depends to
a relatively high amount on the reputation of the awarding institution. This
perspective on returns to education supports the view that particularly the

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

perception of an educational institution in the eyes of major labor market
actors such as firms and associations matters.
Segmentation theories (Dickens & Lang, 1985) stress the context effect of,
for example, dual labor markets, whereby the returns to education depend
largely on the labor market segment a person enters into. The primary segment offering good returns to education and career opportunities, whereas
the secondary labor market segment offers only unstable jobs which do not
reward higher education and this sector might employ larger numbers of
overeducated persons (Boll, Leppin, & Schömann, 2014).
Countries provide very specific context to achieve returns to education.
International migration of university graduates is an obvious example of this.
Medical doctors or IT-professionals trained in one country might seek higher
returns in another country due to existing shortages of highly skilled persons
in that profession (Neugart & Schömann, 2002). Green card immigration, that
is, immigration in specific occupation fields, is a well-known phenomenon of
industrialized countries. Additionally, the labor market context changes itself
not only due to industrial restructuring in longer time intervals, but is subject to rapid and very much unforeseeable changes as became obvious in the
recent financial crisis (Reinhart & Rogoff, 2009).
EMPIRICAL CONTRIBUTIONS
The controversy on theories of the returns to education and training spurred
a huge body of empirical assessments of returns to education and training.
We focus here on the monetary returns as this has yielded the largest differences in the debate. We approach the topic from a life course perspective,
which means we analyze returns first at entry into the labor market, then at
labor market and job changes, over job durations and at exit from the labor
market or retirement decisions.
Starting with the influence of institutional features on the entry into the
labor market, Shavit and Müller (1998) have demonstrated how institutional
differences like the availability of an established apprenticeship system determine the access to the labor market for youth. Returns to general education,
just as much as returns to professional education hinge on the access to a
first job. Labor market contexts understood as institutional settings with long
path dependencies shape this entry process and returns to a great deal. Entry
into the labor market specifically for graduates and their returns to education have been studied under the label of “over-education” (Boll et al., 2014).
Over-education is the educational level achieved in excess to what is necessary in the current job.
In moving from a short-term assessment of over-education to a longer-term
evaluation of over-qualification from a gender perspective, Gangl and Ziefle

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5

(2009) demonstrated the wage penalties for motherhood to be substantial.
They estimate this penalty to be between 9% and 18% per child depending on
the country’s labor market context. The wage losses were substantially higher
for German mothers than for American and British mothers. Hence, the institutional context or society’s support for parental care shapes the returns to
education. Employers remunerate the duration of labor market experience
as a crucial element of wage determination (Mincer, 1974).
Similar in direction to the wage penalty effect of motherhood, Gangl (2004)
demonstrated the scar effect of unemployment. Results on the United States
and 12 European countries show that post-unemployment earnings are permanently lower for high-wage employees and older workers and women.
The institutional settings like a more generous unemployment benefit systems can mitigate the negative effects of unemployment on workers earnings
through more generous unemployment benefits or stricter employment protection regulation (Schömann, Rogowski, & Kruppe, 1998) which reduces
dismissals at least in the short run. The way in which labor markets, family work, or parental leave are organized in a society have a lasting effect on
monetary returns to education.
In the same realm, differences between full-time and part-time work
as they are more common in some labor markets than others continue to
impact on returns to education. Not only do part-time employees have lower
earnings, but the spread among part-timers is substantially larger. However,
the decision to work part-time seems to driven in large parts by labor market
contexts like the provision of child care by employers or availability of
public or private infrastructure for child care or elderly care in a society.
Such institutional arrangements codetermine returns to education, as they
are responsible for differential remuneration of educational qualifications
mainly between women and men, but also within gendered groups.
Labor market contexts vary systematically between public and private
sectors of the economy. Returns to education in terms of monetary returns
are generally lower in the public sector compared to the private sector
(Schömann, 1994). In terms of the career progression or status attainment,
the public sector seems to be an attractive alternative for employees. The
attractiveness of the public sector for higher educated persons seems to
persist (Becker, 2007) despite the monetary penalty. Job security in form
of higher employment protection, even after nowadays longer periods of
fixed-term entry positions in the public sector, remains an alternative nonmonetary return to education. At times of higher risk of unemployment due
to economic crises (Reinhart & Rogoff, 2009) and industrial restructuring,
this form of life course security or job stability constitutes an added value to
higher education.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Returns to further education and training have received a rather mixed
empirical assessment varying not only between labor market contexts but
different authors, based on different data sets, have found contradicting evidence. In terms of monetary returns the summary finding seems to indicate
that there are small positive returns to further training, but not necessarily
for persons who have previously been unemployed and they take at least
a medium term perspective to materialize. However, major nonmonetary
returns consist in higher job security for incumbents, that is, reducing the
risk of losing one’s current job, only specific targeted programs for the unemployed work to bring them back into a job. Schömann and Becker (2002)
demonstrated differences according to the regional labor market conditions
for East and West Germany.
AREAS OF CUTTING-EDGE WORK: CURRENT CHALLENGES
In this section, we want to highlight a few areas where important fields of
research have been identified. We focus on areas that have been addressed
only recently and in most instances, only some first results are available
which address major current challenges in terms of research as well as policy
issues.
The first issue is the adequate distinction of context effects to be due to
age, period, or cohort effects (Schömann & Becker, 1995). The monetary or
nonmonetary returns to education are dependent on specific time periods
most easily identified as economic cycles and their impact on, for example,
the returns to education for persons graduating in an economic recession or
due to societal restructuring like the discontinuity of the German Democratic
Republic. Some sociologists even label such periods as a “lost” or disadvantaged generation at a specific historic period of time which is expected to
have lasting effects on the person’s life course (Diewald, Goedicke, & Mayer,
2006).
Cohort effects may consist in cohort effects of large cohort sizes graduating
at the same time from high schools and then experiencing continued crowding in the labor market for their entire working career, as it was demonstrated
so forcefully for the baby boom generation of the 1960s and 1970s. Beyond
cohorts of graduates there seems to be mainly evidence from sociology that
cohorts due to year of birth have an impact on future returns to education.
This indicates that in addition to individual education attainment belonging
to a group that shares the same context like the birth cohort has measurable
effects on labor market success.
In addition, the propensity to take risks is one of the elements, which has
received higher attention recently (Siarov, 2012). There is evidence that the
basic feature to be more ready to accept labor market risks pays off in forms

Returns to Education in Different Labor Market Contexts

7

of returns. Men appear to be also more willing to enter into risky areas of
education and more risky jobs, but the labor market is likely to reward such
risk taking with a higher wage premium. The early analyses of distinguishing
between jobs in the public versus the private sector of the economy have
probably identified a similar outcome, although not being able to address
the underlying causal or behavioral mechanism.
The returns to education depend on skill matches or mismatches in the
labor market. There are fields of education and professional training that
are, either temporarily or even over extended periods of time, in over-supply
or under-supply on the labor market. Returns to education are expected to
reflect such a disequilibrium on the labor market, particularly if it turns into
a persistent feature of the labor market. A great deal of labor market studies
have analyzed returns only in a general fashion for all graduates of professional education or university-level education, but the returns to specific
fields of study have only recently become more feasible due to better provision of large size representative samples of the population to estimate such
effects (Stark, 2007). Such studies can trace the returns to specific professions,
such as engineers or medical doctors, that have high education costs, but also
the potential to yield persistent above average monetary returns to education
(Neugart & Schömann, 2002).
Some professions seem to be subject to specific “hog-cycles” of employment and earnings, which means in periods of high demand and high wages
many students are attracted to this field. Once these students graduate after
about 4 years with a degree from universities in one country the labor market
demand for these graduates might have changed drastically. Where a shortage has occurred before 4 years, later we might find already an oversupply
which the labor market is not capable to absorb in the short run. Hence, careful assessment of the overall aggregate labor market situation is indicated in
addition to own individual preferences for a field of study.
Among the current challenges is the continuous increase in longitudinal
data which allows not only to look into the returns to education with a
snap-shop perspective but to study the unfolding of careers. Some first
evidence suggests that there are indeed very different trajectories of positive
feedback loops with higher education and continuous further training,
much in line what is coined as lifelong learning trajectories, and stagnant
trajectories with low levels of general education and hardly any participation
in further training (Schömann & Becker, 2002). Whereas the former type of
trajectory can reap high returns on education the latter ones fail to secure
such returns. It remains to be investigated to what extent these very different
education and earnings trajectories are due to a person’s characteristics,
self-selection into education and careers or, whether teacher and employer
selection of persons for higher education and job careers are the driving

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

mechanism. Evidence on returns to education of second generation migrants
suggests that a large share of the variance in returns is not explained through
individual differences in human capital endowment.
Returns to education while staying on the same job for longer durations
indicate that higher human capital allows persons to enter earnings trajectories that grow further apart as time continues (Becker & Schömann, 1996).
Better general education allows persons to (self-) select into more favorable
labor market contexts. For example, context effects of high unemployment
regions, which depress monetary returns, are more pertinent to lower and
middle level qualified persons as they find geographic and job mobility more
difficult to achieve. In the same vein, higher general education allows persons to shift between industrial sectors more easily compared to persons with
sector-specific professional skills.
Nonmonetary returns to education are also rather context specific. In
analyses of three major components of job satisfaction (Fasang et al., 2012)
show that lower qualified persons are less satisfied with their work-life
balance in the European Union. Both the lowest and the highest education
groups are less satisfied with their current work contract than middle-level
education groups. No significant differences exist for the satisfaction with
career prospects. This probably indicates that different education groups
across European labor markets have different career orientations. This study
was able to demonstrate the impact of welfare regimes as an “ensemble” of
regulations defining the labor market context.
KEY ISSUES FOR FUTURE RESEARCH
Among the key issue for future research, we identify the difficult to disentangle process of sorting into education tracks and ensuing labor market
careers. Labor market contexts and institutional arrangements create welfare and labor market regimes, which structure careers. General education
has some promise to allow persons to escape from strong context effects,
but empirically this works only to a limited extent. Demonstrating “escape
routes” and evaluating best practice that allows to impact career trajectories
in a sustained fashion will remain high on the agenda. Further progress is
needed to disentangle in a more precise fashion the self-selection into careers
from the structural effects as careers evolve over longer durations or even the
entire life course well into retirement. In short, self-selection or other selection
processes vary according to the context.
More research is needed to address the phenomenon of persons switching between contexts and to find out what this means for returns. Switching
between contexts may mean to grow up in one country and its specific labor
market context, but then to move to a different labor market. There are studies

Returns to Education in Different Labor Market Contexts

9

that address such labor market changing behavior as international migration
or brain drain but considering return migration and moves within the European Union, but between countries is hardly researched with respect to labor
market outcomes. Transnational careers and migrant workers are an increasing group of people, yet we have little evidence to support policy making in
the area.
The research in this area is dominated by supply side arguments that
individuals’ characteristics are the primary determinant of returns, yet the
demand side of the labor market has a crucial role to play as well. Not only
labor market segments and the size of firms provide very specific context
but also within firms and teams’ labor organization in firms and the role of
supervisors create unique contexts (Baron, 2011). Personality traits as well
might be co-influenced by family background if we subscribe to Bourdieu’s
theoretical statement that “habitus” matters just as much as own educational
credentials.
In the current labor market, crisis in many countries we witness a revival of
occupational (context specific) skills to secure jobs. This is primarily affecting
young labor market entrants, but it is not restricted to them. Apprenticeship
systems provide short-term solutions to such occupational skill gaps, but
we lack evidence that supports the long-term potential of such educational
tracks to outperform the returns to general education qualifications.
The returns to education are broader in scope than just monetary returns.
However, the returns in terms of job satisfaction (Allen & Van der Velden,
2001), happiness or self-realization seems to be underexplored. Post materialism might require research to shed more light on nonmonetary returns to
education and further training. Hereby we return to basic questions, whether
education is solely to be seen as an investment expected to yield monetary
returns. Returns such as higher job or life satisfaction due to higher education
are a topic with continued relevance.
Finally, we would like to emphasize that the long lasting educational
expansion since the 1950s and 1960s in most industrialized countries has
not resulted in decreasing returns to education across the life course and in
different labor markets (Müller & Jacob, 2008). In contrast to the hypotheses,
which claim that “inflation of credentials,” “individualization of educational
careers and work biographies,” or “de-standardization of transitions from
school to work” have reduced returns there is a little evidence to support
such claims. The empirical evidence suggests that in modern societies,
education and social capital are still the most important resources to achieve
returns to education in the labor market. Even independent of the labor
market context, significant positive returns to education and further training
can be achieved in both monetary and nonmonetary fashion. Different
contexts only tend to widen the spread of such returns.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

FURTHER READING
Hadjar, A., & Becker, R. (Eds.) (2009). Expected and unexpected consequences of the educational expansion in Europe and the US. Bern, Switzerland: Haupt.
Kogan, I., Noelke, C., & Gebel, M. (Eds.) (2011). Making the transition: Education and
labor market entry in central and eastern Europe. Palo Alto, CA: Stanford University
Press.
Mayer, K. U., & Solga, H. (Eds.) (2008). Skill formation: Interdisciplinary and crossnational perspectives. New York, NY: Cambridge University Press.
Müller, W., & Gangl, M. (Eds.) (2003). Transitions from education to work in Europe.
The integration of youth into EU labour markets. Oxford, England: Oxford University
Press.
Schömann, K., & O’Connell, P. J. (Eds.) (2002). Education, training and employment
dynamics: Transitional labour markets in the European Union. Cheltenham, England:
Edward Elgar.

KLAUS SCHÖEMANN SHORT BIOGRAPHY
Klaus Schöemann graduated from the University of Wales College Cardiff
and completed his PhD at the Free University of Berlin in 1992. He worked
at the UNESCO Office of Statics on education statistics and at the Social
Science Research Center (WZB) in Berlin on employment and labour market policies. He has been a Consultant to the ILO, OECD as well as to the
national employment and education ministries. For the European Union, he
coordinated a large European research project on transitional labour markets. Since May 2014 he is head of programme at the Deutsches Institut für
Erwachsenenbildung—Leibniz Institute for Lifelong Learning and Professor
of Sociology at Jacobs University Bremen.
ROLF BECKER SHORT BIOGRAPHY
Rolf Becker graduated from the University of Mannheim and completed his PhD at the Free University of Berlin in 1991. He worked at
the Max Planck Institute for Human Development and Dresden University of Technology (Habilitation) on life courses, education, labor market
research, and social stratification. In the last years he has published
several books on social inequality of education, educational expansion,
and sociology of education. Professor Becker is chair and director of the
department of sociology of education at the University of Bern (Switzerland).
http://edu.unibe.ch/content/abs/mitarbeitende_abs/prof_dr_rolf_becker/
index_eng.html

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13

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Returns to Education in Different Labor Market Contexts