Ah yes. No other topic in the field has launched a thousand regressions -- the theme of my last two weeks. For some reason, my labor and development class have separately arrived at this topic at the same time without any coordination. How much does an additional year of school increase a person's income, holding everything else constant? That is, what is the returns to education?
Estimates vary but it's around 7% for the US. That is, an additional year of schooling increases earnings by 7% on average. The number is higher for developing countries. In Brazil, it's over 10%, according to a paper we were just discussing by Lam and Schoeni (Lam is my professor). Psacharopoulos pegs it at 11.2% for low income countries and 11.7% for lower middle income countries like the Philippines. He has a nice paper comparing the rate of returns in different places here.
Interestingly, Duflo provides evidence (in a really nifty paper [I can't link to the published version]) that the estimates are probably overstated. She makes use of a large scale increase in school construction in Indonesia as a policy experiment. Nonetheless she finds a rate of return in the range of 6.8-10.6%.
I'm wondering whether anyone has done work estimating it lately for the Philippines. This one's quite dated. I assume it could be tricky given that educated people have a higher unemployment rate than less educated ones. Plus, international migration is nontrivial.
As for me, I am personally left to reflect on the question, what is the rate of return I get from getting a PhD? I have a sinking feeling it's very small. It doesn't matter. I have other things I maximize on.
Wednesday, January 25, 2012
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1 comments:
Seems like you could handle the unemployment issue by asking people how much they expect to earn in their next job...that might bias your estimates but it should be a decent proxy at least.
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