RETURNS TO EDUCATION, COHORTS AND BUSINESS CYCLE IN COSTA RICA: 1987-2008

Abstract

A pseudo-panel approach is used to estimate the returns to schooling (RTS) in Costa Rica. This
approach ameliorates the “ability” bias due to the correlation between the level of education and nonobservable
characteristics of the individual.We found that RTS are higher for older samples.
Once we study the behavior of the RTS -using different settings and estimators- we analyze their
correlation withDeaton’s year, cohort and age effects. We found that the income of younger cohorts is
greater than the income of older cohorts, once experience and short run fluctuations of the economy
are accounted for. This difference in income between generations is explained by differences in levels
of education. Other factors that differ between generations seem to be less important to explain their
income differences. Finally, we present preliminary evidence suggesting that short run fluctuations of
the GDP affect in a greater extent those with less education.