Investment in education behaves in a similar manner to investment in physical capital. How can patterns be established in view of the plethora of recent research? Can the importance of the human capital theory be reaffirmed? This World Bank Policy Research paper reviews and presents latest estimates and patterns from the literature at the turn of this century. A wide-range of references and examples are drawn from around the world, both “developed” and majority. Latin America, Sub-Saharan Africa and the Caribbean experience the highest average returns to schooling. Asia stands at the world average, while higher income OECD countries have lower returns. The lowest are Middle Eastern, North African and non-OECD European countries. However, the paper makes it clear that there is a “research gap” at the interface between micro and macro evidence on the returns to education.
At a micro level, there are tangible and measurable returns to investment. Such evidence is not apparent in the macro literature. Non-comparability between data sets raises scepticism regarding methodologies and data sample coverage. Externalities, or “spill-over benefits” that effect society as a whole are almost impossible to measure. Despite such criticisms of the data, the following highlights a more “selective” approach:
- Overall, women receive higher returns to schooling investments. However, returns to primary education are higher to men
- There is an urban bias to the figures and a public over private sector bias
- Rate of return studies have been used in the Indonesian school building project, India’s blackboard project and Ethiopia’s major sector investment programme
- Private returns are higher than “social” returns. This is attributed to the public subsidisation of education and the fact that typical rate of return estimates are not able to include social benefits.
Returns to education are no longer seen as strictly prescriptive, but rather as indicators suggesting areas of concentration. For instance, the impact of technology on wage differentials has led to a huge literature on changing wage structures. Further policy implications include:
- Governments and other agencies funding studies of returns to education. The aim is to guide macro policy decisions about the organization and financing of education reforms. This is the case in the UK and Australia
- More research is needed into the social benefits of schooling
- In developing countries, more evidence of the impact of education on earnings is required
- Research used to create programs promoting investment and reforming financial mechanisms is needed
- Public policy makers should heed the evidence of the productivity of education. Individuals are encouraged to invest in their own human capital. Design of policies and crafting of incentives should ensure low-income families make those investments.
