We seem to be ignorant in our understanding of the determinants of the derived demand for labor with different amounts of schooling.It is clear that, in general, employers offer higher pay to more highly educated workers, but our knowledge of what elements or ingredients of schooling make people more productive is scanty.Is it what they have learned in school, as measured by test scores? Or is schooling valuable for the patterns and modes of thought and behavior it develops in people? Or does schooling merely serve as a screening device that identifies the more able, highly motivated young people in our society? LEEHANSEN (1970)AbstractThis paper examines three alternative explanations of the basic finding that amounts of education and personal earnings are positively correlated in some 30 countries studied. Arbitrarily labelled (1) the “economic”, (2) the “sociological” and (3) the “psychological” explanation, (1) argues that better‐educated people earn more because education imparts vocationally useful skills that are in scarce supply; (2) propounds that they do so either because length of schooling is itself correlated with social class origins or because education disseminates definite social values which are prized by the ruling elite of a society; (3) contends that education merely selects people in accordance with their native abilities and, obviously, abler people earn more than less able ones.The question is asked: Are these really conflicting explanations? It is concluded that a proper appreciation of the economic explanation in fact assimilates the other two. In a perfectly competitive labour market, earnings will necessarily reflect the relative scarcity of “vocationally useful skills,” and the vocational skills must include the possession of values and drives appropriate to an industrial environment. In the absence of competitive pressures, however, earnings may reflect purely conventional hiring practices. In the final analysis, therefore, the question posed by the paper hinges on the strength of competitive forces in the labour markets. The question whether education contributes to economic growth turns out likewise to depend on the presence or absence of competitive labour markets.An analysis is made of the internal logic of the three explanations. Also examined is the small quantity of direct evidence available on the link between education and the productivity of workers. An attempt is made to view familiar questions from a new angle and to relate the education‐causes‐growth debate to contentious issues in the field of