Compensation. We’ve already learned three vital facts about the effect of education on compensation. First, thanks to ability bias, education’s financial benefits—cash and noncash—are smaller than they look. A reasonable estimate is that only 55% of the apparent premium is genuine.11 Second, most of education’s financial benefits are sheepskin effects. In percentage terms, the last year of high school is worth about 3.4 times as much as a regular high school year, and the last year of college is worth about 6.7 times as much as a regular college year. Since sheepskin results for the master’s
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