Dissecting the Comparatively Low Education Premium in Sweden - an Empirical Approach
Abstract: Previous studies show that Sweden has the lowest rate of return to tertiary education in the OECD, significantly lower than its Nordic neighbors. Common factors suggested by conventional theory in explaining differences in the education premium are related to relative supply and demand of skilled labor, productivity, labor market features and fiscal policy. We investigate whether these factors can explain the comparatively low education premium in Sweden by performing pooled OLS (POLS) with time fixed effects and elaborating by Blinder-Oaxaca decomposition, on a panel data set containing 27 countries. At best we are able to explain around 60 % of the difference between Sweden and the rest of the sample, and the size of the public sector along with the tax level are shown to contribute most to the explained difference. The relatively large degree of unexplained difference may in part be due to omitted variables which are suggested by conventional theory, of which some were not possible to include because of inadequate data. It might also reflect that the observed gap in the education premium stems from unexplained variation not attributed to level differences in the factors, but instead differences in coefficients.
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