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
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