Turning to methodology, a less serious problem occurs when wage effects are confused for returns to education. Mincer (1974) has provided a great service and convenience in estimating returns to education by means of the semi-log earnings function - first done in Becker and Chiswick (1967). However, for the sake of that convenience, many researchers use the raw coefficients of education in the extended (dummy-form) function to report returns to education, whereas these are wage effects.

Another methodological limitation, despite Becker's (1964) warning, is that many researchers feel obliged to throw in the regression whatever independent variables they seem to have in the data set, including occupation. In effect, this procedure leads to stealing part of the effect of education on earnings that comes from occupational mobility.

Perhaps the returns to education estimates that stem from the work of Ashenfelter and others using twins (Ashenfelter and Krueger 1994; Ashenfelter and Rouse 1998; Miller, Mulvey and Martin 1995; Rouse 1999; Behrman and Rosenzweig 1999) and other natural experiments are the most reliable of all. According to this work, the overall private rate of return to investment in education in the United States is of the order of 10 percent. This figure establishes a benchmark for what the social rate of return would be (a couple of percentage points lower, if not adjusted for externalities), or what the rate of return should be in a country with a lower per capita income than that of the United States (several percentage points higher, as based on the extrapolation of the non-so-comparable returns to education presented earlier).

Incidentally, estimates of the returns to education based on analysis of twins' eamings - as well as estimates using IV measures (see, for example, Card 2001) - come to an average rate of return that is very similar to the global average presented in this compilation: 1 0 percent.

# **IV. Extensions**

There is a concern in the literature with what might be called "social" rates of return that include true social benefits, or externalities. Efforts to make such estimates are numerous, but the estimates vary widely. The earnings of educated individuals do not reflect the external benefits that affect society as a whole but are not captured by the individual. Such benefits are known as externalities or spillover benefits, since they spill over to other members of the community. They are often hard to identify and even harder to measure. In the case of education, some have succeeded in identifying positive externalities but few have been able to quantify them (but see Weisbrod 1964; Haveman and Wolfe 1984). If one could include externalities, then social rates of return may well be higher than private rates of return to education. A recent review finds that empirical evidence is scarce and inconclusive, providing some support for human capital externalities, but not very strong (Venniker 2001). These studies estimate extemalities in the form of individual's human capital enhancing the productivity of other factors of production through channels that are not internalized by the individual (similar to Lucas' (1988) theory). As Venniker (2001) states, evidence is not unambiguous. In fact, some estimates give negative values, while others give very high estimates.

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