Returns to EducationReturns to Education

The Gender PerspectiveThe Gender Perspective

Global Symposium: Education: A Critical Path to Gender Equality and Empowerment, October 2-3, 2007

World Bank, Washington DC

Harry Anthony PatrinosWorld Bank

Human Capital: Not a New IdeaHuman Capital: Not a New Idea

The most valuable of all capital is that invested in human beings

Alfred Marshall

1890

Returns to SchoolingReturns to Schooling

• Returns to investment in education based on human capital theory– Estimated since 1950s

• Several reviews of empirical results in attempts to establish patterns

• More estimates from wide variety of countries, over time, new econometric techniques– Reaffirm importance of human capital theory– Education as investment

Costs

18 23

5 42

65 0

Earnings

Direct cost

Age

Time (years)

Secondary School Leavers

University Graduates

Benefits

ln Wi = α + βSi + γ1Xi + γ2Xi2 + εi

Returns to Year of Schooling (%)Returns to Year of Schooling (%)

Source: Psacharopoulos and Patrinos 2004

0

2

4

6

8

10

12

14

Argentina Belarus China Ghana Kenya Pakistan Romania Russia Venezuela

Higher Returns in Developing Higher Returns in Developing CountriesCountries

11 %

7 %

Industrial Developing

Highest Returns to PrimaryHighest Returns to Primary

27 %

17 %19 %

Primary Secondary Higher

10%

Figure 1: Returns to Schooling by Region (%)

0

4

8

12

Europe/Mid-

east/N.Africa

OECD World Asia Africa LatinAmerica

Schooling years

0

4

8

12

Returns

Returns Years of schooling

Rising Higher Education ReturnsRising Higher Education Returns

-2

+2

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2% points

Primary

Higher

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1970 1980 1990 2000

Rate of Return (%) Years of Schooling

Returns to Additional Year of Returns to Additional Year of SchoolingSchooling

Private ReturnsPrivate Returns Undisputable

Universal, global

Explaining behavior

Analyzing distribution effects

Example: Student loans

But not sufficient for funding policies

Social BenefitsSocial Benefits

• Beyond private benefits of increased productivity

• Private non-market effects

• Externalities: spillovers; innovation; community

Social Returns to EducationSocial Returns to Education

• Effect of others’ education on wages(Acemoglu & Angrist 1999, Moretti 2002)

• Average schooling at the state level is highly correlated with average wage

Wolfe and Zuvekas (1997)

Non-Market/External BenefitsNon-Market/External BenefitsBenefit type Findings Study Source Non-wage remuneration

More educated get higher fringe benefits and better working conditions

Duncan (1976), Lucas (1977)

Intra-household productivity

Wife's schooling affects husband's earnings Benham (1974)

Child education Parental education affects child's educational level and scholastic achievement

Murnane (1981), Angrist and Lavy (1996)

Child health Child's health positively related to parental education

Edwards and Grossman (1979), Grossman and Joyce (1989)

Fertility Mother's education lowers daughter's births Sandefur and McLanahan (1990), Rosenzweig and Evenson (1977), Sathar (1984)

Own health More education increases life expectancy

Feldman et al. (1989), Robins (1984)

Spouse's health More schooling improves spouse's health and lowers mortality Auster et al. (1969), Grossman (1975)

Consumer efficiency More schooling improves consumer choice Michael (1972), Corman (1986)

Job search efficiency More schooling reduces cost of search, increases mobility Greenwood (1975), DaVanzo (1983)

Better marital sorting Better matching Becker et al. (1977)

Desired family size More schooling improves contraceptive efficiency

Michael and Willis (1976), Rosenzweig and Schultz (1989)

Charity More schooling increases donations Mueller (1978), Dye (1980)

Technological change Schooling helps R&D and diffusion Nelson (1972), Wozniac (1987)

Social cohesion Schooling increases voting and reduces alienation Gintis (1971), Comer (1988)

Income transfers More schooling reduces dependence on transfers

Antel (1988), Kiefer (1985)

Crime Education reduces criminal activity Yamada et al. (1991), Ehrlich (1975)

Savings More schooling increases savings rate Solmon (1975)

Intergenerational BenefitsIntergenerational Benefits• Parents with more schooling spend time with children

effectively• Parents with more schooling better at assessing

returns to schooling• Parents with more schooling add more to household• Parents with more schooling serve as role models

Returns to Schooling by GenderReturns to Schooling by Gender

8.7

9.8

Men Women

Benefits of Girls’ EducationBenefits of Girls’ Education

• Year of schooling for girls reduces infant mortality 5-10% (Schultz 1993)• Children of mothers with 5 years primary 40% more likely to live beyond age 5

(Summers 1994)• Double proportion of women with secondary reduces fertility rate 5.3 to 3.9 per woman

(Subbarao & Raney 1995)• Providing girls with extra year of education wages by 10-20% (Psacharopoulos &

Patrinos 2002)• More productive farming due to increase female schooling, 43% of decline in

malnutrition (Smith & Haddad 1999)• Women’s education has more impact than men’s on children’s schooling (Filmer 2000)• Brazil: women’s resources have 20X impact on child health compared with men’s

(Thomas 1990)• Young rural Ugandans with secondary 3X less likely to be HIV (De Walque 2004)• India: women with formal schooling more likely to resist violence (Sen 1999)• Bangladesh: educated women 3X likely to participate in political meetings (UNESCO

2000)(Herz and Sperling 2004; Watson 2005)

Schooling GapSchooling Gap

Men

Men

Men

Women

Women

Women

0 2 4 6 8 10 12

Industrial (22)

Developing (81)

Overall (103)

Source: Barro & Lee

Gender Differences in Returns to Gender Differences in Returns to SchoolingSchooling

95 estimates of male & female schooling returns

Coefficients from 49 countries

• 63 are greater for females (66%)

• 3 equal

• 23 greater for males

Returns to Schooling by GenderReturns to Schooling by GenderSelected CountriesSelected Countries

0 5 10 15 20

Venezuela

Uruguay

Russia

Philippines

Latvia

Guatemala

Colombia

Belarus

Argentina

Males Females

Returns to Schooling by LevelReturns to Schooling by Level

0

4

8

12

16

Overall Primary Secondary University

Men Women

Gender DifferencesGender Differences

• Rate of return to schooling for men is highest for primary education– decreases for secondary education– increases for university education

• For women, returns lowest for primary education– highest for secondary education– Decreases for university education

Men

Women

0

4

8

12

16

Primary Secondary University

A Major Policy ConcernA Major Policy Concern

• Families may decide to send sons rather than daughters to school

• Jeopardizes MDGs, at least 2

• Lower returns to females at primary level is puzzling – opposite situation in transition countries

ExplanationsExplanations

• Detrimental impact of discrimination and other factors– cause women to accept wage offers that undervalue

their characteristics

• Better educated woman more able & willing to overcome sex handicaps & compete with men in labor market

• Male-female differences in quality of schooling(Dougherty 2005)

460

470

480

490

500

510

520

Reading Mathematics Science Problem Solving

Female Male

OECD Average, PISA 2003

Chile, IALSChile, IALS

• Working women score higher on standardized test:

219 > 209• Women have more schooling: 10.5 > 9.3• But earn significantly less

Chile, IALSChile, IALS

• Working women score higher on standardized test:

219 > 209• Women have more schooling: 10.5 > 9.3• But earn significantly less• Receive lower returns to Year of Schooling

Males Females Returns to schooling 0.113 0.079

Chile, IALSChile, IALS

• Working women score higher on standardized test:

219 > 209• Women have more schooling: 10.5 > 9.3• But earn significantly less• Receive lower returns to Year of Schooling• And receive lower returns to Cognitive Ability Males Females Males Females Returns to schooling 0.113 0.079 0.087 0.061 Standardized ScoreIALS 0.153 0.105

ExplanationsExplanations

• Women may choose to work in sectors where education is relatively highly valued

• Lower return to primary may be evidence of discrimination– such that women need to achieve more schooling in order to

earn sufficient wages– or option value of schooling – since women are likely to

perform better, stay in school longer, & experience higher returns for each year of schooling, then the most able go beyond primary schooling, thus depressing the returns at that level

(Dougherty 2005)

Gender DifferencesGender Differences

• Possible that differential returns due to different job opportunities available to men and women at each schooling level

• In Thailand, manufacturing jobs that pay more & require secondary have grown more rapidly for women (Hawley 2004; Phananiramai 1996; Kurian 1999)

• Jobs that require only primary (eg, construction), proportion of men may be higher because of tradition or labor intensity, so men have higher returns to primary

ConclusionsConclusions• Overall, returns high; justify public & private investment• Differential returns signal problems in labor market

– and need for further research

– including program evaluations

• Lower returns to primary for women in developing countries a major policy concern– Jeopardizes MDGs, at least 2, limits overall benefits of women’s

schooling

• Quality necessary, but not sufficient• Enrollment incentives may be needed