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Cognitive Skills and Returns

Study and Objective Model and Method Data Main Result


Ghana (Dependent & Independent
variable)
“Skills, Schooling, and Three reduced-form incomes Ghana Living Standards Survey, Test scores are important
Household Income in Ghana” function. (Scores on 1988-89 determinants of total income.
(Jolliffe 1998). mathematics They do not appear to be
and English tests are used as important determinants of farm
Objective: Estimate the effect of measures of cognitive skills), income.
cognitive skills on the incomes and
of Ghanaian households. (the returns to these skills are Main Finding: show that an
measured by estimating farm increase of one standard
profit, off-farm income, and deviation from HH average
total scores results in an increase in
income.) total income of 9.6%.

Pakistan
“School Quality and Cognitive Production functions for Multipurpose survey panel of A 10 percent increase in
Achievement Production: cognitive achievement as 800 households collected by schooling attainment raises
A Case Study for Rural Pakistan” measured by tests of literacy the International Food Policy reading and math scores by
(Behrman et al. 1997) and numeracy. Research Institute in 1989 and just over 4 percent. A 10 percent
The major direct determinants results from tests of literacy and increase in teacher quality
Objective: Examine the of cognitive achievement are numeracy designed by the indexes raise predicted reading
importance classified as (years of schooling, Educational Testing Service. test score by 3 percent and
of school inputs in rural school quality, parental inputs math score by 2 percent.
Pakistan. into the learning process, and Lowering the student teacher
the individual's potential ratio by 10 percent raises
to learn.) predicted math score by 2
percent and, treating the
coefficient as a best estimate,
predicted reading score by 1
percent.

Colombia
“Decomposing the Gender Gap Standard human capital Sample of 2,100 workers The return to education in the
in Cognitive Skills in a Poor Rural equation plus (reasoning and collected in 1988. Cognitive conventional model is 10
Economy” (Alderman et al. cognitive ability variables.) achievement was assessed using percent. When adding ability
1996) items designed to evaluate alone, it drops to 9.4 percent.
general knowledge not When cognitive knowledge is
Objective: Investigate the exclusively related to the entered, the return falls to 8.9
determinants of the educational content of formal education. percent, which is expected given
gender gap in rural Pakistan. the high correlation between
years of schooling and cognitive
knowledge.

Pakistan
“Decomposing the Gender Gap Reduced-form demand relations Multipurpose survey panel of Gender gaps in school
in Cognitive Skills in a Poor Rural for starting school and for 800 households collected by enrollments and in cognitive
Economy” (Alderman et al. cognitive achievement the International Food Policy achievement are large in rural
1996) Research Institute in 1989 and Pakistan. The findings suggest
results from tests of literacy and that a large portion of these
Objective: Investigate the numeracy designed by the gaps are due to gender
determinants of the educational Educational Testing Service. differences in local school
gender gap in rural Pakistan. availability. Solely by eliminating
the gender gap in local primary
school availability, the gender
gap in total cognitive
achievement for the cohort ages
10–25 could have been reduced
almost a third and that in
literacy by over 40 percent.
Random (gender, urban/rural and so on) and Return

Study and Objective Model and Method Data Main Result


Ghana (Dependent & Independent
variable)
“Skills, Schooling, and Three reduced-form income Ghana Living Standards Survey, Test scores are important
Household Income in Ghana” function. (Scores on 1988-89 determinants of total income.
(Jolliffe 1998). mathematics They do not appear to be
and English tests are used as important determinants of farm
Objective: Estimate the effect of measures of cognitive skills), income.
cognitive skills on the incomes and
of Ghanaian households. (the returns to these skills are Main Finding: show that an
measured by estimating farm increase of one standard
profit, off-farm income, and deviation from HH average
total scores results in an increase in
income.) total income of 9.6%.

Ghana
“Private Returns on Education in argued that education enhances Ghana Living Standards Survey, GLSS 5 shows that in the
Ghana: Estimating the Effects of the (skills and knowledge of (GLSS 5) Ghanaian labor market,
Education on Employability in individuals) for better 2005/06 individuals who have attained
Ghana.” (Prince Asafu-Adjaye) employment, higher basic, secondary and tertiary
productivity and improved (in Ghana, individuals with basic education have higher
Objective: to estimate the wages. education are 11.1 percent probabilities of being employed
effect of education on the more likely to be employed than than those with no education,
probability of being employed in Using Human Capital Theory, individuals with no education ceteris paribus. However, the
Ghana. Logit-Probit model for ceteris paribus.) highest private returns on
constructing employment education, in terms of
variables and Chi- Square Test. employability is tertiary
education. Hence optimal post
Dependent variable: primary education investment in
Ghana is one with a high
possibility for tertiary education.

Bangladesh
“Returns to education in  Earning functions are Household Income and The average returns to
Bangladesh.” (Mohammad Niaz estimated by using Expenditure Survey (HIES), education obtained for the full
Asadullah*) Ordinary Least 1999-2000 sample is 7.1%. Returns are
Square(OLS). estimated separately for rural
Objective: estimate labour  wage work (5.7%) and urban (8.1%)
market (private) returns to participation samples, males (6.2%), females
education and (not including estimated by using (13.2%) and private sector
wage worker from sample.) Probit function. employees. Substantial
heterogeneity in returns is
 hourly wage rate for observed; e.g. estimates are
the daily laborers. higher for urban (than rural
 Wage is defined as sample) and female samples
the sum of net (compared to their male
monthly salary and counterparts).
allowance plus other
additional payments
and allowances
received in cash in
wage employment
over the year for
Salaried workers.

Pakistan
“EDUCATION AND EARNINGS IN by using Mincerian earning Pakistan Integrated Household An additional year of schooling
PAKISTAN” (Zafar Mueen Nasir function Survey (PIHS), 1995/96 raises individual’s monthly
and Hina Nazli) income by 7.3 Percent.

Objective: To estimate the


Males earn more than females
effect of education on earnings. and earnings are higher in urban
To examine the additional
earnings associated with extra areas as compared to rural
school years at different levels. areas.
To investigates the role of some
important factors such as, A graduate of private school
technical training, school earns 31 percent higher income
quality, and literacy and compared to the graduate of
numeracy skills on earnings. public school.

Germany, Ireland, Italy and the United Kingdom


“Estimating the Rate of Return Microsimulation methods Eurostat (1996) The estimates of the internal
to Education rate of return produce results
using Microsimulation” (Cathal Mincer style wage equations are consistent with other
O’donoghue*) estimated for each country to international comparisons, that
model the return to education rates of return tend to diminish
Objective: to compare returns of gross earnings. with education level and that
to education in four European rates of return for women
countries, Germany, Ireland, Internal Rate of Return usually exceed those of men.
Italy and the United Kingdom. The results however, are quite
Marginal Benefit of Education sensitive to the classification of
education level and to the
degree of the employment
differential by education.

Turning to the marginal benefit


of education, we find that
private returns are higher than
social and fiscal returns to
education. This would suggest
that individuals gain more from
education than society in
general and more than the
public finances do.

Ghana
“Education, skill, and earnings: Mincer earning Function GLSS 5 This paper provides evidence on
Further evidence from Ghana” {Evidence from empirical (What might explain these the nature of returns to
(Charles Ackah, Charles Adjasi, studies using the Mincerian convexity trends? Look at education in Ghana and
Festus Turkson, and Adjoa equation conclusion section of this paper) confirms the emerging empirical
Acquah) (after Mincer 1974) suggests literature on the convexity of
that the relationship between returns to education in Ghana.
Objective: re-examines the education and earnings for most The returns to education more
effect of education on earnings countries were concave and than triples from primary to
in Ghana. with the implication that low secondary level or higher––an
levels of education have higher indication of a rather strong
To analyze returns to education returns (Psacharopoulos 1994; convex relationship.
across occupational groupings Psacharopoulos and Patrinos
and geographical locations to 2004). In recent times, much of the educated worker would earn
consider their effect in the empirical evidence from significantly higher than the
influencing earnings. developing countries, however, non-educated worker and
shows that returns to primary returns to education would be
education may be lower than higher at primary levels than at
that of post-primary education, higher education levels.
suggesting that the earnings–
education profile is, in fact,
convex.}

Switzerland
“On the Measurement of Private The Human Capital Theory Problem Statement: what first empirical results for
Rates of Return to Education.” (According to this theory would be the best way to Switzerland indicate that once
(Stefan C. Wolter and Bernhard training and education of all finance the educational system, educational costs have been
A. Weber) kinds, including so-called "on- at the tertiary level, is deducted, wage-earning
the-job" training, increase a increasingly a matter of urgent advantages would be too
worker's productivity, which in a debate, due to the uncertain insignificant for it to be possible
competitive labor market will be state of public finance. to speak of redistribution of
reflected in higher rates of pay.
This wage-earning advantage Swiss Wage Structure Survey income „from the bottom up" in
produced by education may be (LSE), 1996 any meaningful way.
looked upon as the return on
human capital. the return to a university
education is clearly lower for
Cost Benefit Model both sexes than is the case for
example with other non-
university forms of tertiary level
education (HVC and HBTC).

Secondly the rates of return are


calculated always relative to the
next lower level of education,
which in the case of HVC and
HBTC is APS and in the case of
UNI it is A levels. As A levels
have a higher median wage
than APS, the relative distance
for UNI is shorter than for HVC
and HBTC.

Pakistan
“Microeconometric Analysis of The private returns in terms of Data was collected from the The private financial returns to
Private Returns to Education difference in monthly earnings sample of teaching and non- education for college level
and Eterminants of Earnings” associated with difference in teaching staff of respondents have been found to
(MUHAMMAD AFZAL*) education, experience, age, educational institutions by using be the highest (9.1%) among all
gender, family background, questionnaire method. levels of education. The positive
Objective: to identify the key family status, and others was contribution of computer
determinants of earnings of the measured by adopting human literacy in case of University
employees in institutions of capital approach. respondents has been found to
general education. be highest (15.3%) among all.
Mincerian Style
To explore the major factors Microeconometric Model The occupation (teaching vs
that affect individual’s earnings non-teaching) earning
and to estimate the private differentials were found to be
financial returns to education by highest at University level of
different levels of education. education. Teaching staff
(irrespective of gender) has been
To compare the relationship found earning more than non -
between education and teaching staff at all levels of
earnings for teaching and non- education.
teaching, and male and female
workforce of institutions of The gender earning differential
general education in Lahore. gap found to be highest at
school level. Those university
To assess the variation in respondents, who have passed
earnings with level of education matriculation examination (SSC)
of the employees in institutions from private educational
of general education in Lahore. institutes, earn 8.7% more than
those who have qualified SSC
from government educational
institutes. Based on findings of
this study, it is recommended
that such rational development
programs and policies should be
initiated that minimizes the staff
earnings differentials that arise
due to occupation (teaching vs
non-teaching) and gender (male
vs female) basis.

Pakistan
“Private Returns to Education Based on human capital theory Pakistan Labour Force Surveys The estimates using the
in Pakistan: A Statistical and Standard Mincerian Earning (LFS) traditional approach with
Investigation” (Haroon Jamal, individual LFS cross-section data
IBA working paper no. 15-2, Functions with some Trends are also disaggregated suggest 5.5 percent yearly
2015) modifications. for gender, region, province, returns for wage earners after
sectors and educational controlling for the heterogeneity
Objective: estimates of the rate attainments. In addition, the in the regional and provincial
of returns to education by study also employs the pseudo- labor markets in Pakistan. This
constructing a pseudo-panel panel approach for the first time is an average of 16 estimates of
(synthetic cohort data set) from in Pakistan for estimating individual household surveys
16 repeated cross-sectional overall returns to education to conducted during the period
surveys of LFS during the control unobserved individual 1991 to 2013. Moreover, it is
period 1991 and 2013. heterogeneity which is common also attempted to derive one
to estimate returns from data estimate of returns with the
on individuals. pooled data and with fixed
effect year dummy variables
to control for sampling errors
and other biases in the
individual surveys. This exercise
suggests that each additional
year of schooling raises wages
by approximately 5.3 percent.

An important finding of the


study is that returns to
education increase with
education level up to graduate
level, while a decline is observed
for post-graduate level. Thus,
the estimated returns
associated with the educational
attainment or credentials
indicate the convex relationship
between education and earning.
It implies that additional
education has a much stronger
proportionate impact on
earning at higher than at lower
education level. In terms of
professional degrees, highest
returns are estimated for the
degree of medicine. Although,
marginal returns to M.Phil/Ph.D.
are low as compared with
graduate and degree in
engineering and medicine, the
wage premium is the highest
among all categories of
professional degrees.
Australia
“The private rate of return to a Internal Rate of Returns 2006 Census data This article presents estimates
university degree in Australia” Net Present Value of the private monetary benefits
(Anne Daly, Phil Lewis, Michael in Australia associated with the
Corliss and Tiffany Heaslip) completion of Bachelor degrees
for a range of fields of study
Objective: the major question under a range of different
of interest is the extent to which assumptions. For the average
returns to a degree differ person, results show strong
between individuals by gender, monetary incentives to complete
discipline and income these degrees and the private
distribution at a point in time rate of return compares
when the economy was favorably with the real long-
undergoing a boom, namely term bond rate. However,
2006. differences can be observed in
rates of return according to
gender and discipline of study
with, generally, lower returns
for women and for those
holding degrees in the
humanities.

Italy
“The Private Rate of Return to Based on Human Capital Theory
Education Analysis” (Andrea
Cegolon) “Traditional Method” = Cost -
Benefit Analysis
Objective: The pages are
intended to answer this IRR (Internal Rate of Return)
question: what is the weight
and importance of the school
regarding worker productivity
and consequently what are the
economic benefits that flow
from it to the subject.

Turkey
“Wage Inequality and Returns to OLS and quantile regression 1994 Household Income and First, male wage inequality in
Education in Turkey: A Quantile techniques Consumption Expenditure Turkey is high. Although the
Regression Analysis*” (Aysit Survey male wage inequality exhibited
Tansel) (results are provided for the and a small decline over the 1994-
wage effects of experience, 2002 Household Budget Survey 2002 period a closer
Objective: analysis of male public sector employment, examination indicates that
wage inequality in Turkey. geographic location, firm size, wage inequality declined at the
industry of employment and bottom end of the wage
their contribution to wage distribution and increased at the
inequality. Recent increases in top end of wage distribution.
FDI inflows, openness to trade
and global technological Second, all education levels
developments are discussed as contributed positively to the
contributing factors to the wage inequality through both
recent rising within-groups within and between dimensions.
wage inequality.)
Third, the returns to different
schooling levels declined
significantly from 1994 to 2002.
There were two factors
responsible for this decline. One
is the substantial improvement
in the educational attainment of
the working population recently
and other is the severe
economic crisis of 2001 which
adversely affected the labor
market. These factors suggest
that there was a shift in the
labor supply while at the same
time labor demand remained
stable or declined.
Fourth, the within-group male
wage inequality has increased
while the between-group male
wage inequality declined over
the study periods. The latter
decline may have offset or
reversed the former increase
contributing to the observed
overall decline in male wage
inequality from 1994 to
2002.

Fifth, experience, public


employment and living in urban
areas all contributed The male
mean years of schooling
increased from about seven
years in 1994 to about eight
years in 2002 reflecting the
increased years of compulsory
schooling from five to eight
years in 1997.

There were significant decreases


in the percentages of the male
wage earners in the lowest
educational levels. The
percentages of illiterates
declined by almost 50 percent.

Education increases within-


group wage dispersion because
of the F-tests confirm that the
quantile returns at different
points of the wage distribution
are significantly different from
one another at five percent level
of significance in both 1994 and
2002. Thus, the OLS results
which provide the return
estimates at the mean of the
wage distribution mask,
important differences in the
return estimates at different
points of the wage distribution
indicating that schooling is not
uniformly rewarded in the labor
markets.
(see page 11 and 12)