Sunday, December 07, 2008

The return to education

Education is often what separates the rich from the poor. But a question of interest is how this road to prosperity varies with the level of education. To be more specific, how would an individual's income change if she earns an additional degree or simply spends an additional year in school.

Within the Armenian context, as in many countries, it is not always clear that the most educated are always the most compensated; the return to educationn is an open empirical question.

I am working on a project that examines how wages vary by educational attainment using survey data for 5 years. Below I report summary statistics from one of the cross sections. As we can see the average monthly salary generally rises with education. But given the size of the standard deviations, the differences in mean salaries are not always statistically significant.

2003 Monthly Salary by Education Level (in Drams)
.......Education ... Obs. Mean StdDev
............. primary 17 26471 15322
.incomplete secondary 94 23796 20580
.. general secondary 729 29898 24669
...secondary special 892 26183 24119
... incomplete higher 25 37953 28577
..... high education 869 35374 92064
Note: limited to ages 25-60 and to those who report monthly compensation only; excludes one outlier with general secondary education.

Next I report OLS estimates and control for age, in quadratic form, and gender. Again, there is little statistical difference in the compensation of individuals with different education levels. Other than the finding that women get paid much less than men, by some 22,000 drams, there is nothing remarkable in the estimates reported below.

OLS Estimates of Monthly Salary
...... Variable .... Coefficient Std. Err.
incomplete secondary -2747.38 14631.88
.. general secondary 3624.517 13629.23
...secondary special 3284.955 13604.52
.. incomplete higher 14444.31 17463.65
..... high education 12284.46 13610.02
................ age 2604.828 1144.01
............ age sq. -30.4604 13.67846
............. female -21897.6 2192.599
........... constant -18805.9 26665.94

The above findings, of course, require some serious work to correct for occupational choice (eg, construction workers make more than teachers), private/public sector employment, among others. But for now it would be good to know if any one else is doing work in this area.


Joe said...

This type of analysis is very interesting and could be helpful in rationalizing the market for education and educational services.

In the US for example, annual tuition is often the same for lower paying majors, e.g. Psychology vs. Chemical Engineering. Getting into the various schools reflects the market demand somewhat, although it is usually geared more towards selecting students that are more likely to succeed in the major.

In some fields. Law, Business and Medicine, there are clear post graduate advantages concerning the available jobs, mostly driven by the alumni associations.

My interests are in the economic considerations of the growing distribution of learning and life long learning, just as tutoring, online courses, adult continuing education and Just in Time learning such as Smart Phone delivered information.

David said...

Satisfaction itself can be endogeous to compensation.

In general one would hope that pay would rise with education. Otherwise, education (other than the intangible benefits that come with it) would be a bad investment. That is the point of this exercise.

Joe said...

Another perspective is the concept that the more a population is educated the better chance of a functioning democracy.

This idea goes back to Jefferson but I don't know if anyone has studied the idea. I've met very smart and well educated individuals from non-democratic countries and even lived in a dictatorship for two years, so I can testify that they aren't mutually exclusive.

Happiness is an interesting concept, there has been a lot of research into this area but much has been ambiguous.