Returns to Education: A Further International Update and Implications George Psacharopoulos, 1985 The presentation will be of a paper on the optional reading list; you are presenting it to an economics seminar of colleagues, in about 20 minutes using about 10 slides to explicate the main ideas and situate it in the larger economics (slides on Motivation, Related Literature, Methods, Data, Results, & Policy Implications are advisable).

Motivation This paper updates evidence on the returns to investment in education How? By adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60. What were they trying to confirm? If returns are highest for primary education General curricula The education of women Countries with the lowest per capita income. my "Rate of Return-New Estimates" file has become overly thick and unmanageable. Perhaps the time has come for another stock-taking exercise to determine if the earlier documented rate-of-return patterns have been maintained . The updated study covers 61 countries. Goal: If the findings have important implications for directing future investment in education, for efficiency and equity purposes, then policy makers should concentrate on these priority areas.

If Education is a form of capital, what is the rate of return? Profitability on education compared to physical capital? Primary or University education? General or Technical? Social Returns vs. Private returns? If you think of education from an economic perspective, there are diminishing returns

Expansion of the data set: The rate-of-return evidence has been organized to address issues to be discussed in this paper. The internal rate of return: College degree income: $9000 Only High school income: $6000 Total private cost for 4 year college: $15000 Net between College and High school income: $3000 Internal rate of return : 20% Expansion of the data set: Including existing estimates to bring the total number of country cases to over 60. More emphasis on gender breakdown Competitive versus non competitive sector breakdown Notes: When several rate-of-return estimates were available for a given country, year, or level of education, the author included the rates that in his judgment would be most comparable to the rest. Various sources have been used for this analysis

Average Returns to Education by Country Type and Level Observations: Summary of the master table that provides estimates of average private and social returns by level of education. The table confirms the earlier well-documented declining rate of return pattern by level of education , where primary education is the most profitable educational investment opportunity The decline is because of the interaction between the low cost of primary education (relative to other levels) and the substantial productivity differential between primary school graduates and those who are illiterate. The returns to any level of education are highest in Africa and lowest in the advanced industrial countries. This is explained by the relative scarcity of human to physical capital within each group of countries.

Differences between Private and Social Returns to Education Private vs. Social Returns for Africa

Types of Returns to Education (1)

Types of Returns to Education (2) Judging from past trends and the degree of underinvestment Education in developing countries, the fears that further educational expansion would lead to unemployed graduates or would lower social returns are unfounded. This proposition is based on time series which shows that rates of return have not changed much as investment increases. Within the secondary or university level, the general curricula programs offer as good investment opportunities as the more pursuits. This is because the higher unit costs of vocational/education depress the social rate of return to this type of schooling.

Types of Returns to Education (3)

Policy Implications Underinvestment Where to invest? Underinvestment exits at all levels of education Social returns to education is above the social discount rate Underinvestment Primary schooling remains the number one priority Social rate of return to primary education exceeds secondary and higher Where to invest? Reduce higher education subsidy to equal private rate to social rate of return Reducing public subsidies to higher education and reallocate them Reduce and Reallocate Increasing participation of women is not only equitable but socially efficient The social returns for investing in female education is significantly higher for developing countries Gender These rate of return patterns have several implications for the shaping of educational policy, especially in developing countries. of educational policy, especially in developing countries. Underinvestment exists at all levels of education Gender: reducing the excess mortality of girls and women; eliminating remaining gender disadvantages in education; increasing women’s access to economic opportunity and thus earnings and productivity; Improves mortality rates, early childhood education; Investing in women’s education is just smart economics. Given the social returns is high.

Further policy implications Top universities in the country are public Top high schools in the country are private Relatively good public school system High cost for universities Top universities and high schools are public Supply of universities cannot meet demand