Monetary returns to upper secondary schooling, the evolution of unobserved heterogeneity, and implications for employer learning

We study the evolution of monetary returns to high school education and their heterogeneity after the labor market entry using linked survey and administrative labor market data from Germany. By exploiting academic track school openings for cohorts from 1950–1985, we find sizeable monetary returns of 14–17% per year of additional schooling within the first 10 years of labor market experience. Whereas unobserved heterogeneity in the returns is initially uncorrelated with the schooling decision, the correlation starts evolving at higher levels of labor market experience. We interpret this finding considering employer learning – so far unconsidered in the literature.