Abstract

This paper studies how returns to educational degrees has evolved in Canada from 2005 to 2020 by combining data from the 2006 and 2021 Canadian Census. The study uses a two-class finite mixture model to capture unobserved heterogeneity that may be correlated with individual characteristics, in a way that resembles the use of fixed effects in a panel data setting. The mixture model reveals two distinct groups and highlights unobserved differences in earnings
that standard models could miss. The findings show that while higher education still leads to higher earnings, the return to education has empirically declined over time for individuals
with graduate degrees. In contrast, returns to college and trade-level education have increased, suggesting that practical skills has become more valuable in the Canadian job market. These findings reveal the changing nature of the Canadian economy and help policymakers and educators improve education and training programs to better meet the needs of today’s job market.