What’s the Return on Education? (News and Research 267)

New comparable dataset finds that investments in education, tertiary in particular, lead to higher earnings | The early theory of human capital laid out in 1960s by Gary Becker argues that people treat investments in their human capital, which is mostly achieved through acquiring education, similarly to other types of investments – by evaluating the payoff in terms of expected earnings. What we need more information about is how exactly education affects labor market outcomes. For more than 50 years, researchers (eg, Banerjee and Duflo 2005; Gunderson and Oreopoulos 2020; Peet et al 2015; Psacharopoulos 1972, 1994; Trostel et al 2002) have reported on the patterns of estimated returns to schooling across economies, but these estimates are usually based on a wide range of studies that may not necessarily be comparable. Our new dataset on private returns to education includes estimates from 1970 to 2014 using 853 unified household surveys. With this effort the definition of the measured variable, the set of controls, sample definition, and the estimation method for all surveys, all remain unchanged. Thus, the dataset presents comparable estimates of the returns from schooling overall, by level of education, by region of the world, by level of income, and by gender. The Comparable Returns to Education database we are introducing, enables comparisons of returns to schooling from around the world. It includes the results from household and labor force surveys from 142 countries which have been harmonized and thus made comparable. We estimate an average, worldwide private rate of return to schooling of 10 percent. The returns to schooling are higher for women than for men by two percentage points. On average, each subsequent year of schooling raises women’s earnings by 12 percent. In low-income countries, this number jumps to 13.5 percent…more

The full paper is available here; working paper version here; full dataset here.

Returns to tertiary education have increased considerably over the past few decades to more than 17 percent. Photo: ShutterstockReturns to tertiary education have increased considerably over the past few decades to more than 17 percent. Photo: Shutterstock


Human Capital Accumulation at Work: Estimates for the World and Implications for Development In this paper, the authors: (i) study wage-experience profiles and obtain measures of returns to potential work experience using data from about 24 million individuals in 1,084 household surveys and census samples across 145 countries; (ii) show that returns to work experience are strongly correlated with economic development—workers in developed countries appear to accumulate twice more human capital at work than workers in developing countries; (iii) use a simple accounting framework to find that the contribution of work experience to human capital accumulation and economic development might be as important as the contribution of education itself; and (iv) employ panel regressions to investigate how changes in the returns over time correlate with several factors such as economic recessions, transitions, and human capital stocks.


New Tool Shows Economic Returns of Colleges | The Bill & Melinda Gates Foundation with support from the Bill & Melinda Gates Foundation, the Institute for Higher Education Policy (IHEP) this week released a web-based, interactive tool outlining students’ economic returns at colleges and universities nationwide. This resource aims to inform leaders and policymakers on equity gaps and gains in student outcomes.