Private Returns to an University Education: An Instrumental Variables Approach

This article examines the determinants of the salaries that Spanish university graduates earn on the labor market. Different earnings equations are estimated that allow us to measure the economic returns to investment in human capital at the university level, demonstrating that: on the one hand, considering schooling to be an exogenous variable gives a downward bias to the estimations of the private rates of return to an university education; on the other hand, not taking into account the aspects of the demand-side of the labor market in the traditional Mincerian earnings function, even though schooling is considered as an endogenous variable, the rates of return estimated for an university education would be given an upward bias. The problem concerning the endogeneity of schooling has been corrected in this article by using the instrumental variables technique.     

Higher levels of education for higher private returns: New evidence from Malaysia

This study provides new and more accurate information about private rates of return to education (RORE) in Malaysia. Most of the prior studies on RORE have not addressed selectivity bias, and those that have are based on an older data set. The findings suggest that for both males and females, the average private returns to education are highest at the secondary (16.5 percent and 27.2 percent, respectively) and university (15.5 percent and 16.1 percent, respectively) education levels. Thus, it is important to pursue education until the secondary level and further to the university level to capture higher returns to education.     

Secondary Vocational Education and Earnings in Latin America[1]

ABSTRACT

Household survey data for II Latin American countries are used to assess earnings differentials by type of secondary education during the late 1980s. Introduction of the cost of the curriculum allows for the estimation of private and social rates of return to investment in education by type of secondary school curriculum. The paper documents mixed results. In some countries the private returns to vocational schooling are higher than the returns to general secondary schooling. Introducing differential cost of curriculum and estimating social returns to schooling results in much lower returns to vocational schooling.

     

The profitability of school investments in an educationally advanced developing country

The Philippines is a country in which phenomenal educational expansion has taken place in the last 30 years. As such, it is a natural case for testing the hypothesis that investment in education is no longer economically valid. In this paper we provide new estimates of the returns to investment in education in that country for 1988. The findings indicate that both social and private rates of return are of conventional levels and therefore a case of overexpansion is not warranted. Among the three educational levels considered, primary education exhibits the highest returns and university education the least. But because of the particular case of the Philippines where private sources are dominant in tertiary education financing, the degree of public subsidization is highest in primary education. This makes the Philippines a world outlier in the structure of public financing of education, and serves equity and poverty alleviation causes as well.     

Public spending on higher education in developing countries: Too much or too little?

This paper discusses problems with the prevalent view that public resources for education in developing countries should be reallocated from higher to lower levels of education. There may be a case for maintaining and even increasing spending on higher education, as long as public funds can be directed to research and other “public good” functions of institutions of higher education. Current measures of social returns to primary, secondary and higher education do not reflect unmeasured social benefits at each level; since we do not know the relative size of these benefits across levels, we do not know the true ranking of social returns across primary, secondary and higher education. The true social rate of return to certain components of higher education, such as research and postgraduate training in science and technology, and creation of other skills where social returns probably exceed private returns (such as public administration) is probably high, and in some settings, may now be as high or higher than the social rate of return to primary and secondary education. Moreover, achieving and sustaining adequate levels of quality to capture these social returns requires minimal stability in public financing, arguing against major reallocations away from higher education. But this does not argue for more public spending on all higher education programs. On the contrary; within the envelope of total public spending on higher education, reallocation away from public spending on undergraduate training makes sense, since such training probably has low social compared to private returns, and can be accomplished by greater reliance on private universities and by increasing tuition and other fees in public universities, while ensuring equitable access through loan and scholarship programs.     

Perceived Rates of Return to Higher Education: an international review and comparison

The present paper attempts to assess the link between economic factors and the private demand for higher education through an investigation of the findings of relevant studies. After an examination of the various methodologies adopted by different authors in the estimation of the perceived rate of return to higher education, the main findings of available studies conducted in several countries (UK, the Philippines, Egypt, Hong Kong, and Cyprus) are discussed and compared. The main conclusions drawn from this comparison are the following: First, the perceived rates of return to higher education are, for the most part, very realistic, indicating an accurate perception of the economic benefits of higher education on the part of students. Second, non‐economic factors, such as gender, ability and socio‐economic background, appear to constitute strong influences on the private demand for higher education, which educational policy makers should take into account, along with the economic variables. Finally, it is suggested that the methodology discussed in the present paper can be used in the future to estimate the perceived profitability of higher studies at different institutions and countries offering higher education.     

The returns to education in Slovenia

This article provides estimates of the returns to education in Slovenia. A Mincerian earnings function was estimated on three data sets, i.e. the 1978, 1983 and 1993 Household Expenditure Survey, with the subsample consisting of households where adults were employees (in the public or private sector). The estimated rates of return for all educational levels and for both men and women were rather low in 1978 and 1983. This can be explained with a tightly regulated labour market, with direct state interference-and thus small wage differentials. In 1993, the estimated rates of return increased considerably, though they are still somewhat lower than in most developed market economies. This increase was-without doubt-caused by a more deregulated labour market and a strong push towards market liberalization.     

中国高等教育扩招与经济振兴

中国高等教育从精英教育到大众教育的扩招对经济发展产生了双重影响:既有对短期经济增长的直接影响,也有人力资本积累对长期经济增长的影响.通过描述中国高等教育体系在这次急剧扩招中的主要变化,并用凯恩斯经济原理和人力资本理论分析高等教育扩招与经济发展的近期或远期目标之间的关系,可以发现,“扩招能在短期内振兴经济”的结论是不成熟的,因为中国正在实现其聚集人力资本的长远目标.然而,高校毕业生的失业率越来越高,这在不断危害其自身利益.     

Influences on the intention to enter higher education: the importance of expected returns

Research points to several determinants of the private demand for higher education, which include individual, social, economic, and institutional variables. Of these variables, economic factors are considered to be highly relevant, especially in the current financial crisis. The paper investigates the link between expected rates of return to higher education and the intention of secondary education graduates to pursue university studies. The effect of additional variables influencing the choice of higher education (ability, gender, socioeconomic status [SES], type of secondary school, area of residence) is also examined. The findings show a significant link between the perceived rates of return and the intention of secondary school graduates to enter tertiary education. With the exception of residence, all independent variables are strong determinants of the intention to enter higher education. The paper also points to the considerable effect of the financial crisis on students’ expectations in that respondents reported lower perceived rates of return compared to previous estimates in the same country. The implications of the findings for higher education policy are discussed.     

Are There Economic Incentives for Non‐Traditional Students to Enter HE? The Labour Market as a Barrier to Widening Participation

The expansion of higher education (HE) in the UK has disproportionately benefited young people from relatively rich families: the gap between rich and poor in terms of participation in HE having widened since the 1970s. We explore a neglected possible cause of this class difference: that the labour market fails to provide sufficient incentives for potential entrants from less advantaged backgrounds to enter HE. Most studies of the rewards from participating in HE in the UK suggest that the rates of returns are sufficiently high to provide clear economic incentives to participate. However, until recently, most studies generated estimates of the average rate of return to graduation, which could overestimate returns to marginal entrants, particularly those from disadvantaged backgrounds. In this review we examine the methodological problems faced by more targeted studies of the rates of return to graduation and review their key findings concerning the economic returns to non‐traditional entrants.     

The private returns to education in rural Bangladesh

This study estimates the private average rate of return (ARR) and internal rate of return (IRR) to education in rural Bangladesh. Using data from the Bangladesh Integrated Household Survey (BIHS) 2015, we estimate average returns using the Mincerian method and IRR using the full method, accounting for both the direct and indirect costs of schooling. To account for endogeneity and selection bias, we use parental education as an instrumental variable and apply the Heckman correction method. We find an average return of 18 %, an IRR of 12 % for tertiary education, 4.86 % for secondary, and 5.24 % for primary. In the agricultural sector specifically, however, returns to tertiary education are more in line with primary and secondary education.     

The economics of educational opportunity

The extent to which economic factors can explain private decisions about staying on at school beyond minimum school leaving age and about going on to higher education is considered. The pattern of continuing education by age and by class is described: most terminate their full-time education at the earliest opportunity but a higher proportion of those with middle-class parents stay on. Differences in private rates of return to the student to staying on at school and to university offer an explanation for the lower proportion dropping out of education at the end of school than at minimum school leaving age. Private rates of return do not explain the variation in the pattern of continuing education between social classes. Costs to parents of continuing their child's education are considered for model families at different income levels. These costs, relative to income level, offer a possible explanation for differences in continuing education between socio-economic groups, and may be an important barrier to equal educational opportunity.     

Student loans for higher education in Singapore: some observations

The higher education system of Singapore is seen as crucial for the economic prosperity of the country. It is highly elitist, with fierce competition for limited places, and high private returns. In 1989 the Government announced a policy of reducing subsidies for higher education, in order to reduce the financial burden on the tax-payer, increase expenditure on other levels of education and achieve a more equitable distribution of costs. Tuition fees were increased sharply and a new student loan scheme, the Tuition Loan Scheme (TLS), was introduced. There are in addition two other loan schemes in Singapore, the Student Loan Fund (SLF), and the Central Provident Fund (CPF) Approved Education Scheme, under which parents may borrow from their CPF savings in order to finance their children's higher education, but must repay the loan. This article examines the arguments for and against student loans in Singapore, and concludes that the conditions necessary for a successful loan scheme are already in place: full employment, high private returns to higher education, and an efficient banking system and financial infrastructure. In the light of those conditions student loans seem to be an efficient and equitable form of finance for higher education in Singapore.Views do not implicate The National University of Singapore or The International Institute for Population Sciences. I am thankful to Mr Geoffrey Lau, Planning Services Unit, National University of Singapore for some suggestions and assistance. The usual disclaimers are relevant.     

Perceived rates of return to higher education: Further evidence from Cyprus

The paper provides new estimates of the perceived rates of return to higher education in Cyprus and compares them to previous estimates for the year 1994 in the same country. Both the elaborate and the short-cut methods are used in the estimation of rates of return. The estimated rates are entered as independent variables in logistic regression analysis in order to study the effect of economic considerations on the decision of secondary school students to pursue higher education. The findings show an increase in the perceived rate of return for both higher education and labour market entrants. In agreement with human capital theory, the mean rate of return to higher education expected by higher education candidates is considerably higher than that expected by labour market entrants. In two logistic regression models, the perceived rate of return to higher education, as estimated by both the elaborate and the short-cut methods, has a significant effect on the students’ intention to pursue higher studies.     

RECENT RESEARCH ON THE ECONOMICS OF ATTENDING COLLEGE: Returns on Investment and Responsiveness to Price

This article examines recent research on the private returns to investment in baccalaureate and sub-baccalaureate postsecondary education, the social returns to investment in higher education, and student responsiveness to prices and subsidies (e.g., tuition and financial aid). The analysis focuses on the implications of recent research on the economics of attending college for policy and practice in a variety of specific areas such as enrollment management; the role of community colleges and other sub-baccalaureate institutions relative to welfare-to-work programs, tuition taxcredit legislation, and the value of investing in credits even without credentials; the development of effective high-tuition, high-aid, and other state and institutional pricing strategies; and the inequities in the distribution of access and choice in higher education that is evident in the widening gaps in participation rates of white and minority youth and higher- and lower-income students, as well as in the growing concentration of lower-income students at-and the flight of middle- and upper-income students from-community colleges.     

Perceived rates of return to higher education in Cyprus

The paper estimates perceived rates of return to higher education in Cyprus and uses them in logistic regression analysis in order to study the effect of economic considerations on the decision of secondary school pupils to pursue higher education. Unlike earlier studies, the data used in the computation of these rates are based wholly on the pupils' subjective estimates. The results are supportive of human capital theory: The mean rate of return to higher education estimated by higher education candidates is considerably higher than that perceived by labour market entrants. Logistic regression analysis shows the percieved rate of return to higher education, as estimated by both the elaborate and the short-cut methods, to have a significant effect on the pupils' educational intentions.     

Do rates of return matter for public and private educational decisions?

This article reviews some studies of individual demand for higher education undertaken during the 1970s. It argues that although lifetime earnings are positively related to educational qualifications, rates of return to education do not seem to matter much for either public or private educational decisions. Public educational decisions seem to be affected more by such factors as the inertia of the system, expected externalities of socio-political importance, which are not measurable and, therefore, are excluded from the rate of return calculations and some educational objectives, such as meeting social demand and for ensuring equal opportunities to all individuals, which public authorities adopt at any time period. On the other hand, pupils' educational plans for post-secondary education were found to be greatly influenced by their scholastic achievement, sex and socio-economic status. It was also found that the economic factor which clearly enters into their decisions function, is initial salary differentials. However, a high proportion of pupils do not possess this information. It is also argued that individual demand for post-secondary education could be estimated with a high degree of approximation on the basis of pupils' scholastic achievement at secondary school, sex and socio-economic status. The pupil's ability to finance his further studies, particularly the poor student and in the absence of grant or loan systems is of great importance.     

A Waste of Time? (Private Rates of Return to Higher Education in the 1990s)

Since 1990, there has been considerable debate concerning the benefits of the expansion of higher education and the appropriate way to fund such an expansion. This paper demonstrates that three factors are decisive to the individual contemplating higher education: national economic growth; the relative earnings of graduates and non-graduates; the difference between the average and the marginal student. The results, of analysis based on rates of return, reaffirm the view that a proportion of the costs involved in higher education can be transferred to the graduates themselves in the form of loans. However, there appear to be limits to the costs that can be transferred if all students are to judge that undergraduate study is a worthwhile proposition. Notwithstanding this, most students could be lent more income to study than is now the case and indeed an average student would be advised to take any loans despite the greater debt. Marginal students, however, are making a risky private investment and, therefore, any decisions to further expand may result in students not taking up the places.     

Economic returns to speaking ‘standard Mandarin’ among migrants in China's urban labour market

This article uses data from the China Urban Labour Survey administered across 12 cities in 2005 to estimate the economic returns to speaking standard Mandarin among internal migrants in China's urban labour market. The article builds on studies that estimate the economic returns to international immigrants of being fluent in the major language of the destination country and studies that estimate the economic returns to proficiency in the national language among groups of people who speak a minority language. Importantly, we control for potential endogeneity bias in the estimates of the effect of language fluency on earnings. We find that for migrants as a whole, there are considerable economic returns to speaking standard Mandarin. We also find gender differences. While the coefficient on fluency in standard Mandarin is statistically significant and large for females, the coefficient on fluency is statistically insignificant for males. One possible explanation for this finding is that female migrant workers are engaged more in occupations which have greater contact with urban locals and hence the return to investment in language skills is higher.