Returns to Education in Russia (News and Research 212)

The World Bank ECA Education Global Practice has produced a new Policy Research Working Paper, entitled “Returns to Education in the Russian Federation: Some New Estimates,” written by Ekaterina Melianova, Suhas Parandekar, Harry Anthony Patrinos and Artëm Volgin.

Back in communist times the contribution of education to productivity was established by the Soviet economist Stanislav Strumilin. He showed that those who were more educated contributed more. He even calculated earnings benefits, and though his calculations did not discount earnings, the estimates of the returns were very high.

This recognition of the value of education led to a great expansion in schooling in the Soviet Union. In fact, education was recognized as a form of investment since the 1917 Revolution. Most of the funds for education at the time came from the national budget, with a healthy expenditure on stipends to students. The educated Russian was a product of the Bolshevik revolution which targeted high levels of illiteracy with a program of free, widely available, public education.

Enrollment rates exploded. In 1915, the tertiary education enrollment rate was only 0.3 percent. Between 1920 and 1950 the enrollment rate increased eight-fold. Still, it was only less than 8 percent, compared to 11 percent in the USA. But by 1985 the enrollment rate was 54 percent compared to the USA’s 60 percent. The average schooling level of the population was less than a year in Russia in 1915. At the same time, it was 3 years in Germany and Japan, 4 years in the UK and Germany, and 7 years in the USA. By 1985, Russia had surpassed all but Japan and the USA. By 2000 Russia joins the most schooled countries in the world. Also, in terms of achievement, Russian education quality, as measured by international students assessments, is high, making it one of the top performers. Thus, the world’s largest country is also one of the world’s most educated.

But when researchers analyzed Russian data in the 1990s, they found very low returns to education at about 5 percent (compared to the global average of 9 percent), even when the market was opening. In fact, they found no increase in the returns to education in the 1990s.

But surely since the quality of education is high, then this must translate into higher levels of productivity. But in the World Bank report, How Wealthy Is Russia? human capital only accounts for 46 percent of total wealth, as compared to the OECD average of 70 percent.

In our new working paper, Returns to Education in the Russian Federation: Some New Estimates, we present new estimates of the returns to education in the Russian Federation using data from 1994 to 2018. During this period, average years of schooling increased from 12.4 to 13.3 years and the proportion of the labor force with higher education increased from 26 to 41 percent.

What did we find?

Returns to schooling increased for a time – they increased from 7% in 1994 to 9% in 2001, reaching a high of 9.1 percent in 2001. The average returns for the entire period are 7.3 percent, but only 6.3 percent in the last 10 years, among the lowest worldwide and comparable to those estimated using Russian data from the early 1990s. By 2018, they fall to 5.4 percent.

Private returns to education are three times greater for higher education compared with vocational education; 8% vs 2% in 2018 – The returns to higher education peak at 18 percent. By 2018 they settle at 8 percent, which is just below the European Union average of 10 percent and well below the global average of 15 percent.

Returns to education for females are higher than for males – returns for females show an inverse U-shaped curve over the past two decades. Women receive much higher returns, averaging above 10 percent during the first few years of the new century. While they are declining and approaching convergence with men’s returns, they are still significantly higher.

Although the returns to schooling increased for a time, they are now much lower than the global average. The returns show a declining trend in recent years, in line with the expansion in access that took place up to 2009. On average, in Russia, an additional year of education provides a relatively small – and declining – increase in wages.

Female education is a policy priority and there is a need to investigate the labor market relevance of vocational education. Higher education may have reached an expansion limit, and it may be necessary to investigate options for increasing the productivity of schooling. The labor market in Russia might be at risk of over-education, which leads to a reduction in educational premiums.

However, recent school closures and the on-going COVID-19 pandemic will lead to reductions in earnings for all current students once they reach the labor market. But the distribution of the losses will vary, with higher education graduates expected to suffer the least.

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