Dispersion in the economic return to schooling

In this paper we extend the standard human capital earnings function to include dispersion in the rate of return to schooling by treating the return as a random
coefficient. One motivation is that if the increase in supply of skilled workers has
been brought about by dipping further into the ability distribution. Alternatively if the expansion in post-compulsory education comes about through relaxed credit
constraints then we might expect this to increase average ability in the pool of
educated workers. Either event might lead to a rise in the variance in returns. Based
on a sample of data from the United Kingdom our estimates suggest that neither the
mean nor the dispersion in returns to schooling has altered significantly over time. This is consistent with educational expansion not leading to a disproportionate inflow of low ability individuals into the system.