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Returns to education: An updated comparison from Arab countries
1. Riham Rizk
The British University in Egypt(BUE)
Hala Abou-Ali
FEPS, Cairo University
Returns to education: An updated
comparison from Arab countries
3. Motivation(1/2)
Public investment in human capital is attributed to the
positive social externalities that it creates such as enabling
students to learn skills that increase labor productivity,
improve child health and his well-being, efficiency of
consumer choices and social capital.
Estimates of private rate of return for different educational
level have been carried out for a large number of developing
and developed countries.
The pattern reported on estimated rate of return to
schooling across developing economies is varying.
7. Methodology (1/3)
Methods used in estimating rate of return on education
11) The short-cut Method) The short-cut Method
• The rate of return on education are estimated on the basis
of the following equation applied by (Psacharopoulos,
1981).
The great value of this method, it does not need data about
individual earnings. The main drawback of this formula is
that it assumes flat-earning profiles.
8. Methodology (2/3)
2) Earnings function method
(Mincer, 1974) provided a great method for estimating rate of return on
education using semi-log earnings function. The model follows the
equation below:
9. Methodology (3/3)
After fitting the extended earnings function in equation (2). The private
return to different levels of schooling can be derived from the following
formulas:
In fact, the drawbacks of the Mincerian method that it assumed flat
earnings profile and makes no difference for the discounted rate of
return that existed over time.
10. Limitations
Our analysis used annual earnings for both wage earners
and self-employed.
For the age of individuals, we include schooling age-
children ranges from six years (typical school starting age)
till 60 (retirement age) for all countries.
Finally, an alarm has to be raised for the foregone earnings
of basic school-aged children ,it would be more accurate to
calculate those individuals who failed to complete basic
education for each country separately and subtract them
from the full length of basic education.
13. Conclusions and Policy recommendations (1/2)
The results show some key points:
FirstFirst, estimate of the rate of return varies significantly across countries,
depending on the used methodology.
SecondSecond, the return on tertiary schooling is higher compared to secondary
schooling except for Sudan.
ThirdThird, the rate of return on education for females are higher compared
with males for Egypt only.
14. Conclusions and Policy recommendations
(1/2)
Given the high rate of return to tertiary education, an alarm
has to be raised to policy makers that high return on
education will increase secondary school enrollment
Governments could find a way to finance tertiary education
and to benefit from the higher rate of return.
Where S and S-1 represent to level of schooling and its adjacent level; for example tertiary versus secondary school graduates; are the average earnings associated with those with educational level S and S-1. represent years of education at educational level S. therefore represent the opportunity cost of being on higher level of education compared to those with less years of schooling.
The intuition behind using age to account for drop out, grade repetition and other problems which is very common in Africa (Barouni and Broecke, 2014). Moreover , using age gives estimates for the rate of return that are more likely to be biased downward
Where, the rate of return on tertiary schooling ranges from 12% to 16% while the rate of return on basic education ranges from 2% to 5%. In fact, Jordon’s rate of return on education for those with tertiary education is the highest among all countries (16%).
