50 years of "Returns to Education" studies

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At last week’s Comparative and International Education Society annual conference in Washington DC, Najeeb Shafiq put together a special panel honoring the work of pioneering education economists Martin Carnoy and George Psacharopoulos (formerly of the World Bank).  Martin and George were supervised by Theodore Schultz, a Nobel Prize winning economist, who made human capital theory an important force- not just in economics- but the social sciences in general.  Their work paved the way for thousands of researchers who followed in their footsteps. 

Martin expressed a concern for workers. He said that returns to schooling are important for the disadvantaged youth who are trying to complete a college education and get a good job. It’s also critical for the poor in developing countries who are trying to educate their children. 
 
George’s findings on the rates of return to education continues to play an important role in the formation of significant global educational policies. He suggests that primary education ought to be the main focus of national school systems, since its rate of return was found to be the highest among all education levels. George, during his years at the World Bank (1981-98), oversaw educational research and policy formulation. He influenced the way the Bank approached lending to advance primary education, especially investment in girls’ education in developing countries.  At the panel, George pressed those of us working in education to focus on investments with high returns.
 
I had the honor of joining the panel to a packed audience.  I presented my latest research (co-authored by my colleague Claudio Montenegro) on the returns to schooling.  The  findings show:
 

  • The returns to schooling are 10% per year of schooling;
  • The returns to schooling are higher for women than for men;
  • The returns to tertiary education are higher than the returns to primary or secondary schooling; and
  • There is a decreasing pattern over time, meaning that as schooling levels rise, the returns tend to decline, but only modestly.
 
My colleague Alexandria Valerio also presented The Skills Payoff in Low and Middle Income Countries. Her paper looks at the returns to schooling in eight countries (Armenia, Bolivia, Colombia, Georgia, Ghana, Kenya, Ukraine and Vietnam), using survey data on cognitive and non-cognitive skills.  The findings are:
 
  • There are positive and significant wage benefits associated with a year of schooling;
  • Better cognitive skills yield significant pay-offs; and
  • Several socio-emotional skills matter for earnings, those types of skills are rewarded differently in different countries. 
 
In addition, Alexandria measures the returns to specific job market skills.  Which skills do you think have the highest earnings premium?  Without a doubt, computer skills have the highest pay-off in all countries over and above education and other skills.
 
The session not only celebrated Martin and George’s work, but it reminded us about the importance of asking the right questions, using data, and conducting deep analysis.  Investments with high returns, such as girls’ education and early childhood development, are as vital as ever as we continue to search for measurements of the social returns to education.

Follow Harry Patrinos on Twitter @hpatrinos

Follow the World Bank Group Education team on Twitter @wbg_education 
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Himelda
March 19, 2015

The returns to tertiary education are higher than the returns to primary or secondary schooling
AND ? OR ?
He suggests that primary education ought to be the main focus of national school systems, since its rate of return was found to be the highest among all education levels

Harry Patrinos
March 24, 2015

Thank you for your comment and question. To be clearer, my paper (co-authored by my colleague Claudio Montenegro) on the returns to schooling found that the “private” returns to tertiary education are higher than the returns to primary AND to secondary schooling
George Psacharopoulos said that primary education ought to be the main focus of national school systems since its rate of return was found to be the highest among all education levels, by which he meant the “social” returns.
The difference is the cost of providing education. Social returns to tertiary decline more than primary because the costs of tertiary are much higher.
Claudio Montenegro and I have not computed social returns, but we will do so very soon.

Sunniya Durrani-Jamal
March 28, 2015

could you explain your finding on the payoff to computer skills. Is it really computer skills or were computer skills a proxy for higher cognitive skills?

Harry Patrinos
March 30, 2015

Thank you for your question Sunniya. According to Alex Valerio, the measure for computer skills is frequency of computer use at work. It does not include type/complexity of computer skills used. Computer use is correlated with schooling (0.5 to 0.7). So while it is entirely possible that by itself in a wage equation it represents some effect of general ability, it also explains variations in wages over and above that explained by schooling. Alex tells me that her paper will be out soon. Thank you.

Sunniya Durrani-Jamal
March 30, 2015

Thank you Harry. It would be good if the policy implications of this finding were made clear in Alex's paper, to help inform spending decisions by governments and parents.