Cognitive Skills and Returns
Study and Objective
Ghana
“Skills, Schooling, and
Household Income in Ghana”
(Jolliffe 1998).
Objective: Estimate the effect of
cognitive skills on the incomes
of Ghanaian households.
Pakistan
“School Quality and Cognitive
Achievement Production:
A Case Study for Rural Pakistan”
(Behrman et al. 1997)
Objective: Examine the
importance
of school inputs in rural
Pakistan.
Colombia
“Decomposing the Gender Gap
in Cognitive Skills in a Poor Rural
Economy” (Alderman et al.
1996)
Objective: Investigate the
determinants of the educational
gender gap in rural Pakistan.
Pakistan
“Decomposing the Gender Gap
in Cognitive Skills in a Poor Rural
Economy” (Alderman et al.
1996)
Objective: Investigate the
determinants of the educational
gender gap in rural Pakistan.
Model and Method
(Dependent & Independent
variable)
Three reduced-form incomes
function. (Scores on
mathematics
and English tests are used as
measures of cognitive skills),
and
(the returns to these skills are
measured by estimating farm
profit, off-farm income, and
total
income.)
Production functions for
cognitive achievement as
measured by tests of literacy
and numeracy.
The major direct determinants
of cognitive achievement are
classified as (years of schooling,
school quality, parental inputs
into the learning process, and
the individual's potential
to learn.)
Standard human capital
equation plus (reasoning and
cognitive ability variables.)
Reduced-form demand relations
for starting school and for
cognitive achievement
Data
Ghana Living Standards Survey,
1988-89
Multipurpose survey panel of
800 households collected by
the International Food Policy
Research Institute in 1989 and
results from tests of literacy and
numeracy designed by the
Educational Testing Service.
Sample of 2,100 workers
collected in 1988. Cognitive
achievement was assessed using
items designed to evaluate
general knowledge not
exclusively related to the
content of formal education.
Multipurpose survey panel of
800 households collected by
the International Food Policy
Research Institute in 1989 and
results from tests of literacy and
numeracy designed by the
Educational Testing Service.
Main Result
Test scores are important
determinants of total income.
They do not appear to be
important determinants of farm
income.
Main Finding: show that an
increase of one standard
deviation from HH average
scores results in an increase in
total income of 9.6%.
A 10 percent increase in
schooling attainment raises
reading and math scores by
just over 4 percent. A 10 percent
increase in teacher quality
indexes raise predicted reading
test score by 3 percent and
math score by 2 percent.
Lowering the student teacher
ratio by 10 percent raises
predicted math score by 2
percent and, treating the
coefficient as a best estimate,
predicted reading score by 1
percent.
The return to education in the
conventional model is 10
percent. When adding ability
alone, it drops to 9.4 percent.
When cognitive knowledge is
entered, the return falls to 8.9
percent, which is expected given
the high correlation between
years of schooling and cognitive
knowledge.
Gender gaps in school
enrollments and in cognitive
achievement are large in rural
Pakistan. The findings suggest
that a large portion of these
gaps are due to gender
differences in local school
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
Ghana
“Skills, Schooling, and
Household Income in Ghana”
(Jolliffe 1998).
Objective: Estimate the effect of
cognitive skills on the incomes
of Ghanaian households.
Ghana
“Private Returns on Education in
Ghana: Estimating the Effects of
Education on Employability in
Ghana.” (Prince Asafu-Adjaye)
Objective: to estimate the
effect of education on the
probability of being employed in
Ghana.
Bangladesh
“Returns to education in
Bangladesh.” (Mohammad Niaz
Asadullah*)
Objective: estimate labour
market (private) returns to
education and (not including
wage worker from sample.)
 hourly wage rate for
the daily laborers.
 Wage is defined as
the sum of net
monthly salary and
allowance plus other
additional payments
and allowances
received in cash in
wage employment
over the year for
Salaried workers.
Pakistan
“EDUCATION AND EARNINGS IN
PAKISTAN” (Zafar Mueen Nasir
and Hina Nazli)
Objective: To estimate the
effect of education on earnings.
To examine the additional
Model and Method
(Dependent & Independent
variable)
Three reduced-form income
function. (Scores on
mathematics
and English tests are used as
measures of cognitive skills),
and
(the returns to these skills are
measured by estimating farm
profit, off-farm income, and
total
income.)
argued that education enhances
the (skills and knowledge of
individuals) for better
employment, higher
productivity and improved
wages.
Using Human Capital Theory,
Logit-Probit model for
constructing employment
variables and Chi- Square Test.
Dependent variable:
 Earning functions are
estimated by using
Ordinary Least
Square(OLS).
 wage work
participation
estimated by using
Probit function.
by using Mincerian earning
function
Data
Ghana Living Standards Survey,
1988-89
Ghana Living Standards Survey,
(GLSS 5)
2005/06
(in Ghana, individuals with basic
education are 11.1 percent
more likely to be employed than
individuals with no education
ceteris paribus.)
Household Income and
Expenditure Survey (HIES),
1999-2000
Pakistan Integrated Household
Survey (PIHS), 1995/96
Main Result
Test scores are important
determinants of total income.
They do not appear to be
important determinants of farm
income.
Main Finding: show that an
increase of one standard
deviation from HH average
scores results in an increase in
total income of 9.6%.
GLSS 5 shows that in the
Ghanaian labor market,
individuals who have attained
basic, secondary and tertiary
education have higher
probabilities of being employed
than those with no education,
ceteris paribus. However, the
highest private returns on
education, in terms of
employability is tertiary
education. Hence optimal post
primary education investment in
Ghana is one with a high
possibility for tertiary education.
The average returns to
education obtained for the full
sample is 7.1%. Returns are
estimated separately for rural
(5.7%) and urban (8.1%)
samples, males (6.2%), females
(13.2%) and private sector
employees. Substantial
heterogeneity in returns is
observed; e.g. estimates are
higher for urban (than rural
sample) and female samples
(compared to their male
counterparts).
An additional year of schooling
raises individual’s monthly
income by 7.3 Percent.
Males earn more than females
and earnings are higher in urban
earnings associated with extra
school years at different levels.
To investigates the role of some
important factors such as,
technical training, school
quality, and literacy and
numeracy skills on earnings.
Germany, Ireland, Italy and the United Kingdom
“Estimating the Rate of Return
to Education
using Microsimulation” (Cathal
O’donoghue*)
Objective: to compare returns
to education in four European
countries, Germany, Ireland,
Italy and the United Kingdom.
Ghana
“Education, skill, and earnings:
Further evidence from Ghana”
(Charles Ackah, Charles Adjasi,
Festus Turkson, and Adjoa
Acquah)
Objective: re-examines the
effect of education on earnings
in Ghana.
To analyze returns to education
across occupational groupings
and geographical locations to
consider their effect in
influencing earnings.
Switzerland
“On the Measurement of Private
Rates of Return to Education.”
(Stefan C. Wolter and Bernhard
A. Weber)
Microsimulation methods
Mincer style wage equations are
estimated for each country to
model the return to education
of gross earnings.
Internal Rate of Return
Marginal Benefit of Education
Mincer earning Function
{Evidence from empirical
studies using the Mincerian
equation
(after Mincer 1974) suggests
that the relationship between
education and earnings for most
countries were concave and
with the implication that low
levels of education have higher
returns (Psacharopoulos 1994;
Psacharopoulos and Patrinos
2004). In recent times, much of
the empirical evidence from
developing countries, however,
shows that returns to primary
education may be lower than
that of post-primary education,
suggesting that the earnings–
education profile is, in fact,
convex.}
The Human Capital Theory
(According to this theory
training and education of all
kinds, including so-called "on-
the-job" training, increase a
worker's productivity, which in a
competitive labor market will be
reflected in higher rates of pay.
Eurostat (1996)
GLSS 5
(What might explain these
convexity trends? Look at
conclusion section of this paper)
Problem Statement: what
would be the best way to
finance the educational system,
at the tertiary level, is
increasingly a matter of urgent
debate, due to the uncertain
state of public finance.
areas as compared to rural
areas.
A graduate of private school
earns 31 percent higher income
compared to the graduate of
public school.
The estimates of the internal
rate of return produce results
consistent with other
international comparisons, that
rates of return tend to diminish
with education level and that
rates of return for women
usually exceed those of men.
The results however, are quite
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.
This paper provides evidence on
the nature of returns to
education in Ghana and
confirms the emerging empirical
literature on the convexity of
returns to education in Ghana.
The returns to education more
than triples from primary to
secondary level or higher––an
indication of a rather strong
convex relationship.
the educated worker would earn
significantly higher than the
non-educated worker and
returns to education would be
higher at primary levels than at
higher education levels.
first empirical results for
Switzerland indicate that once
educational costs have been
deducted, wage-earning
advantages would be too
insignificant for it to be possible
to speak of redistribution of

Pakistan
“Microeconometric Analysis of
Private Returns to Education
and Eterminants of Earnings”
(MUHAMMAD AFZAL*)
Objective: to identify the key
determinants of earnings of the
employees in institutions of
general education.
To explore the major factors
that affect individual’s earnings
and to estimate the private
financial returns to education by
different levels of education.
To compare the relationship
between education and
earnings for teaching and non-
teaching, and male and female
workforce of institutions of
general education in Lahore.
To assess the variation in
earnings with level of education
of the employees in institutions
of general education in Lahore.
Pakistan
“Private Returns to Education
in Pakistan: A Statistical
Investigation” (Haroon Jamal,
This wage-earning advantage
produced by education may be
looked upon as the return on
human capital.
Cost Benefit Model
The private returns in terms of
difference in monthly earnings
associated with difference in
education, experience, age,
gender, family background,
family status, and others was
measured by adopting human
capital approach.
Mincerian Style
Microeconometric Model
Based on human capital theory
and Standard Mincerian Earning
Swiss Wage Structure Survey
(LSE), 1996
Data was collected from the
sample of teaching and non-
teaching staff of
educational institutions by using
questionnaire method.
Pakistan Labour Force Surveys
(LFS)
income „from the bottom up" in
any meaningful way.
the return to a university
education is clearly lower for
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.
The private financial returns to
education for college level
respondents have been found to
be the highest (9.1%) among all
levels of education. The positive
contribution of computer
literacy in case of University
respondents has been found to
be highest (15.3%) among all.
The occupation (teaching vs
non-teaching) earning
differentials were found to be
highest at University level of
education. Teaching staff
(irrespective of gender) has been
found earning more than non -
teaching staff at all levels of
education.
The gender earning differential
gap found to be highest at
school level. Those university
respondents, who have passed
matriculation examination (SSC)
from private educational
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.
The estimates using the
traditional approach with
individual LFS cross-section data
IBA working paper no. 15-2,
2015)
Objective: estimates of the rate
of returns to education by
constructing a pseudo-panel
(synthetic cohort data set) from
16 repeated cross-sectional
surveys of LFS during the
period 1991 and 2013.
Australia
“The private rate of return to a
university degree in Australia”
(Anne Daly, Phil Lewis, Michael
Corliss and Tiffany Heaslip)
Objective: the major question
of interest is the extent to which
returns to a degree differ
between individuals by gender,
discipline and income
distribution at a point in time
when the economy was
undergoing a boom, namely
2006.
Functions with some Trends are also disaggregated
modifications. for gender, region, province,
sectors and educational
attainments. In addition, the
study also employs the pseudo-
panel approach for the first time
in Pakistan for estimating
overall returns to education to
control unobserved individual
heterogeneity which is common
to estimate returns from data
on individuals.
Internal Rate of Returns 2006 Census data
Net Present Value
suggest 5.5 percent yearly
returns for wage earners after
controlling for the heterogeneity
in the regional and provincial
labor markets in Pakistan. This
is an average of 16 estimates of
individual household surveys
conducted during the period
1991 to 2013. Moreover, it is
also attempted to derive one
estimate of returns with the
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.
This article presents estimates
of the private monetary benefits
in Australia associated with the
completion of Bachelor degrees
for a range of fields of study
under a range of different
assumptions. For the average
person, results show strong
monetary incentives to complete
these degrees and the private
rate of return compares
favorably with the real long-
term bond rate. However,
differences can be observed in
rates of return according to
gender and discipline of study
with, generally, lower returns
for women and for those

Italy
“The Private Rate of Return to
Education Analysis” (Andrea
Cegolon)
Objective: The pages are
intended to answer this
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
Education in Turkey: A Quantile
Regression Analysis*” (Aysit
Tansel)
Objective: analysis of male
wage inequality in Turkey.
Based on Human Capital Theory
“Traditional Method” = Cost -
Benefit Analysis
IRR (Internal Rate of Return)
OLS and quantile regression
techniques
(results are provided for the
wage effects of experience,
public sector employment,
geographic location, firm size,
industry of employment and
their contribution to wage
inequality. Recent increases in
FDI inflows, openness to trade
and global technological
developments are discussed as
contributing factors to the
recent rising within-groups
wage inequality.)
1994 Household Income and
Consumption Expenditure
Survey
and
2002 Household Budget Survey
holding degrees in the
humanities.
First, male wage inequality in
Turkey is high. Although the
male wage inequality exhibited
a small decline over the 1994-
2002 period a closer
examination indicates that
wage inequality declined at the
bottom end of the wage
distribution and increased at the
top end of wage distribution.
Second, all education levels
contributed positively to the
wage inequality through both
within and between dimensions.
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)