George Psacharopoulos

Returns to Investment in Education: A Global Update

The author updates compilations of rate of return estimates to investment in education published since 1985 - and discusses methodological issues surrounding those estimates. Some key patterns: among the three main levels of education, primary education continues to exhibit the highest social profitability in all world regions - private returns are considerably higher than social returns because of the public subsidization of education; the degree of public subsidy increases with the level of education, which is regressive; social and private returns at all levels generally decline by the level of a countrys per capita income; overall, the returns to female education are higher than those to male education, but at individual levels of education the pattern is more mixed; the returns to the academic secondary school track are higher than the vocational track - since unit cost of vocational education is much higher; and the returns for those who work in the private (competitive) sector of the economy are higher than in the public (noncompetitive) sector. And the returns in the self-employment (unregulated) sector of the economy are higher than in the dependent employment sector. Controversies in the literature are discussed in the light of the new evidence. The undisputable and universal positive correlation between education and earnings can be interpreted in many ways. The causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education. Given the fact that moral and pragmatic considerations prevent the generation of such pure data, researchers have to make do with indirect inferences or natural experiments. Some have been attempted. The author looks at the research on overeducation or surplus schooling. The conclusions reinforce earlier patterns. They confirm that primary education continues to be the number one investment priority in developing countries. They also show that educating females is marginally more profitable than educating males, that the academic secondary school curriculum is a better investment than the technical/vocational tract, and that the returns to education obey the same rules as investment in conventional capital - that is, they decline as investment is expanded.

Returns to Investment in Education: A Further Update

Returns to investment in education based on human capital theory have been estimated since the late 1950s. In the 40-plus year history of estimates of returns to investment in education, there have been several reviews of the empirical results in attempts to establish patterns. Many more estimates from a wide variety of countries, including over time evidence, and estimates based on new econometric techniques, reaffirm the importance of human capital theory. The suthors review and present the latest estimates and patterns as found in the literature at the turn of the century. However, because the availability of rate of return estimates has grown exponentially, the authors include a new section on the need for selectivity in comparing returns to investment in education and establishing related patterns.

Returns to Education: A Further International Update and Implications.

This paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60. The new cross-country evidence confirms and reinforces earlier patterns, namely, that returns are highest for primary education, the general curricula, the education of women, and countries with the lowest per capita income. The findings have important implications for directing future investment in education which, for efficiency and equity purposes, should concentrate on these priority areas.

Education for development: an analysis of investment choices

The principal aim of this book is to make planners and policymakers more aware of the problems that can arise in developing investment strategies for education and the analytical tools and information that are available to help solve them. It draws both on World Bank analysis and research and on the wider literature on planning educational investment. Among the topics discussed are the contribution of education to economic and human development, cost-benefit analysis, the demand for educated manpower, finance, the efficiency and quality of education, equity considerations, and the links between investment in education and in other sectors.

Returns to education : an updated international comparison

The question of the profitability of investing in human capital remains controversial. Three main methods for estimating the rate of return to investment in education are described: the elaborate method, the earnings function method, and the short-cut method. Application of cost-benefit analysis measures in 44 countries yields four patterns that have important policy implications: (i) top priority should be given to primary education as a form of human resource investment due to high returns, both social and private; (ii) secondary and higher education should also be pursued in a program of balanced human resource development; (iii) the larger discrepancy between the private and social returns in higher education indicates room for private finance at the university level; and (iv) falling returns to education that result as a country develops and/or the capacity of its educational system expands are minimal under time-series analysis and do not warrant abandonment of educational expansion.

Indigenous people and poverty in Latin America : an empirical analysis

Indigenous people make up a large and distinct portion of Latin Americas population. While the incidence of poverty is high in Latin America, it is particularly severe and deep among the indigenous population. There is a very strong correlation between schooling attainment and ethnicity, and between schooling attainment and poverty incidence. This report documents that equalization of income-generating characteristics would boost the productivity of the indigenous population in their market and non-market activities and lead to a considerable reduction in inequality and poverty. This suggests that the socioeconomic condition of indigenous people can be improved since policy-influenced variables such as eduction are largely responsible for differences in observed earnings. This unrealized potential provides considerable hope for the future. The challenge that remains, however, is to devise the means by which to enhance the human capital endowments of the indigenous population and create the circumstances by which the indigenous population can derive the maximum benefit from their productivity-enhancing attributes according to their individual and collective predisposition.

Educational performance and child labor in Paraguay

Abstract In this paper, the schooling attainment and labor characteristics of those aged 12–19 years is assessed using data from the 1990 household survey from Paraguay. Although schooling is compulsory to age 13, it was found that 28% of those 12 years of age are already out of school. Among those out of school, 19% work formally in the labor market and contribute about a quarter of total family income. Among the 12-year-olds still in school, one-quarter have repeated a grade or more. The analysis suggests that language strongly influences school attainment and performance. Those who speak only Guarani at home may receive equal access to schooling, but their performance in school (in terms of years of attainment and grade repetition), is considerably inferior to that of Spanish-only and bilingual pupils. The number of siblings was found not to have had much of an effect on school enrollment, although it did have a significant impact on the probability of child labor. These findings may be evidence of ‘specialization’ in the household, whereby some children work, while their siblings are permitted to attend school and concentrate on studying. The results indicate that subsidies to poor households may be necessary to enable them to maintain their children in school for at least the duration of the primary cycle.

The reward for risk in the labor market: evidence from the United Kingdom and a reconciliation with other studies

This is the famous quotation from the Wealth of Nations according to which workers employed in undesirable jobs in competitive labor markets should be paid extra to compensate them for taking such jobs. One obvious nonpecuniary disadvantage of some jobs is that they carry an above-average risk of death or serious injury, and the theory predicts that earnings should be higher than in otherwise comparable jobs with lower risks.1 The main counterargument to this theory is that nowadays, noncompetitive forces dominate labor markets, so that one would be

The trade‐off between child labour and human capital formation: A Tanzanian case study

We investigate the degree to which there is a trade-off between child labour and human capital formation using time-log data of children from a Tanzanian household survey. We find that a tradeoff between hours of work and study exists, and hours of work tend to be more affected by social conditions than hours of study. Hours of work are negatively correlated to reading and mathematical skills through the reduction of human capital investment activities, indicating a trade-off between child labour and human capital. The results point up the complexity of the issue and the need for detailed time allocation data.

On the weak versus the strong version of the screening hypothesis

Abstract The paper draws a theoretical distinction between the weak and the strong version of the screening hypothesis, depending on wether employers pay irrational wages at the initial hiring point (weak) or continuously thereafter (strong). This theoretical distinction is empirically tested using micro data from the United Kingdom. The results of the tests do not support the strong screening version.