State-level heterogeneity in returns to secondary schooling in West Germany

This study focuses on the determinants of regional heterogeneity in returns to schooling. School quality, labor market characteristics, and amenities are potential determinants of regional differences. In contrast to previous research, this study jointly evaluates the contribution of the different mechanisms. I find that returns to schooling differ substantially across the West German states, and correlate mainly with institutional features of the school system. A strong positive association between qualitative differences (e.g., curricula contents or teachers’ training) and returns to schooling shows that these qualitative aspects may be powerful policy instruments.