Returns to Foreign Languages of Native Workers in the European Union

Most of the literature on returns to languages is concerned with immigrants. The authors' study, which uses the European Community Household Panel Survey for the period 1994–2001, infers returns to non-native languages by native workers in nine countries of the European Union. The study differs from other studies that deal with the same issue in three respects. First, instead of using a dummy for each language, they use the ratio of the population not proficient in a given country's national language and compare the results with the more traditional approach using dummies. Second, they correct for time-independent measurement errors in self-reporting and find that the resulting IV estimates are much larger than those obtained by OLS. They also suggest that there is little room for time-persistent errors and heterogeneity and that therefore their estimates should suffer ostensibly little from unobserved ability biases. Finally, they estimate IV quantile regressions to illustrate how returns to languages vary at different points of the distribution of earnings.