Earnings functions and rates of return

The internal rate of return to schooling is a fundamental economic parameter that is
often used to assess whether expenditure on education should be increased or decreased.
This paper considers alternative approaches to estimating marginal internal rates of
return for different schooling levels. We implement a general nonparametric approach
to estimate marginal internal rates of return that take into account tuition costs, income
taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels
and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.