Returns to education: An updated comparison from Arab countries

Riham Rizk The British University in Egypt(BUE)

Hala Abou-AliFEPS, Cairo University

Returns to education: An updated comparison from Arab countries

Overview

Motivation

Objective

Data and methodology

Empirical results

Conclusion and recommendations

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.

Motivation(2/2)

Objectives

Data

ERF-OAMDI Harmonized Household Income and Expenditure Surveys 2010/2011 for

Egypt, Jordan, Palestine, and Sudan 2009.

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.

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:

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.

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.

Empirical results(1/2)

Table (1): Returns to education by country, method and level of education

Short-cut Method Mincer Method

Country Basic Secondary Tertiary Basic Secondary Tertiary

(%) (%) (%) (%) (%) (%)

Egypt 2.2 0.3 3 2.3 3.3 12.212.2

Jordon 0.8 2.1 3.1 3.2 14.7 1616

Palestine 1.4 0.6 2.1 2.6 6.8 12.712.7

Sudan 6.36.3 3.63.6 0.10.1 5.3 14.5 1313

Empirical results(2/2)Table (2):Returns to education by country, method and level of education and

gender Short-cut Method Mincer Method

Country Basic Secondary Tertiary Basic Secondary Tertiary

Panel A-Male (%) (%) (%) (%) (%) (%)

Egypt 1.9 0.5 2.5 2 3.8 11

Jordon 1.7 2.1 3.1 4.3 17.4 18

Palestine 1.7 1 2 2.9 8.1 12.5

Sudan 5.2 4.3 0.4 4.4 16.1 15.9

Panel B-Female

Egypt 2.6 0.1 3.5 2.6 2.7 13.6

Jordon 0.1 2.2 3 2.6 13.6 15.3

Palestine 1.1 0.3 2.1 2.3 6.6 12.8

Sudan 7.8 2.8 -0.2 6.5 12.7 10

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.

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.

Thank you

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