An implicit assumption in the human capital literature is that education affects individuals' general and analytical skills, and not only achievements narrowly related to the curriculum. A general concern in the empirical literature on human capital investments is the extent to which the effect of observed investments reflects unobserved ability. If noncompulsory schooling is only a signaling device, general cognitive skills should not be affected by schooling choices. In order to investigate whether education affects cognitive ability, it is necessary to test individuals after they have completed different amounts of schooling, using a test that does not favor individuals with specific types of education. Natural candidates in this regard are various types of intelligence quotient (IQ) tests as these are designed to test "thinking skills" or "intelligence."
This paper investigates whether formal schooling improves IQ scores. The empirical challenge is to isolate the effect of schooling on cognitive ability from the effect of latent ability. Latent ability is a strong predictor of schooling, at least in a signaling setting. It is thus essential to take selection into noncompulsory schooling into account in order to compare individuals who are initially seemingly identical. Hansen, Heckman, and Mullen (2004) use NLSY data on achievement and solve the selection problem by conditioning on estimated latent ability, utilizing the fact that the individuals have conducted the cognitive test at different ages (between 15 and 22 years of age) and that some have completed their schooling at the date of the test. Although this may be a reasonable approach, an approach that conditions on observed early cognitive ability as in Winship and Korenman (1997, 1999) may seem easier to interpret.
We use the Malm6 Longitudinal Dataset, a dataset much richer on ability measures than the NLSY data. The data include the IQ test from the compulsory military enrollment at age 20, which we use as the outcome variable, in addition to a comparable IQ test and different teacher evaluations at age 10. The latter measures make it possible to utilize comparable early cognitive ability measures to take account of selection into education. The initial sample consists of the population of third graders in the city of Malmo in 1938. Ten years later, a major effort was made by Husen (1950) to collect the results on the IQ test at military enrollment for all individuals in the initial sample. According to Husen, who was also involved in the construction of the latter test, the IQ tests are highly comparable.
In the empirical period, compulsory schooling began the year the child turned seven and lasted 7 years only. In addition to ordinary least squares (OLS), we use instrumental variable (IV) techniques in line with the literature on the return to education in the labor market. Measurement error in education might be a problem, children who believe they will gain most in their development of cognitive skills by remaining in school might be most likely to do so, and people investing in schooling might be more likely to invest more in cognitive skills in other ways. As instruments, we use average family income during childhood, the tracking decision after fourth grade, and the growth in the grade point average (GPA) from the end of third to the end of fourth grade as assessed by the teacher. The two latter variables are attractive because tracking of the students started in grade five, partly based on GPA, and the former variable is attractive in the value-added model formulation because causal evidence indicates that credit market constraints played a role in the empirical period. We present results using the instruments separately, which identifies the schooling effect on very different variations, and jointly in the same model.
How intelligence is determined is an old research question within psychology. …