Returns to Education The Gender Perspective Global Symposium: Education: A Critical Path to Gender Equality and Empowerment, October 2-3, 2007 World Bank, Washington DC Harry Anthony Patrinos World Bank

Human Capital: Not a New Idea The most valuable of all capital is that invested in human beings Alfred Marshall 1890

Returns to Schooling Returns to investment in education based on human capital theory – –Estimated since 1950s Several reviews of empirical results in attempts to establish patterns More estimates from wide variety of countries, over time, new econometric techniques – –Reaffirm importance of human capital theory – –Education as investment

ln Wi = α + βSi + γ1Xi + γ2Xi2 + εi

Returns to Year of Schooling (%) Source: Psacharopoulos and Patrinos 2004

Higher Returns in Developing Countries

Highest Returns to Primary 27 % 17 % 19 % PrimarySecondaryHigher 10%

Rising Higher Education Returns % points Primary Higher

Returns to Additional Year of Schooling

Private Returns  Undisputable  Universal, global  Explaining behavior  Analyzing distribution effects Example: Student loans  But not sufficient for funding policies

Social Benefits Beyond private benefits of increased productivity Private non-market effects Externalities: spillovers; innovation; community

Social Returns to Education Effect of others’ education on wages (Acemoglu & Angrist 1999, Moretti 2002) Average schooling at the state level is highly correlated with average wage

Wolfe and Zuvekas (1997) Non-Market/External Benefits

Intergenerational Benefits Parents with more schooling spend time with children effectively Parents with more schooling better at assessing returns to schooling Parents with more schooling add more to household Parents with more schooling serve as role models

Returns to Schooling by Gender

Benefits of Girls’ Education Year of schooling for girls reduces infant mortality 5-10% (Schultz 1993) Children of mothers with 5 years primary 40% more likely to live beyond age 5 (Summers 1994) Double proportion of women with secondary reduces fertility rate 5.3 to 3.9 per woman (Subbarao & Raney 1995) Providing girls with extra year of education wages by 10-20% (Psacharopoulos & Patrinos 2002) More productive farming due to increase female schooling, 43% of decline in malnutrition (Smith & Haddad 1999) Women’s education has more impact than men’s on children’s schooling (Filmer 2000) Brazil: women’s resources have 20X impact on child health compared with men’s (Thomas 1990) Young rural Ugandans with secondary 3X less likely to be HIV (De Walque 2004) India: women with formal schooling more likely to resist violence (Sen 1999) Bangladesh: educated women 3X likely to participate in political meetings (UNESCO 2000) (Herz and Sperling 2004; Watson 2005)

Schooling Gap Source: Barro & Lee

Gender Differences in Returns to Schooling 95 estimates of male & female schooling returns Coefficients from 49 countries 63 are greater for females (66%) 3 equal 23 greater for males

Returns to Schooling by Gender Selected Countries

Returns to Schooling by Level

Gender Differences Rate of return to schooling for men is highest for primary education –decreases for secondary education –increases for university education For women, returns lowest for primary education –highest for secondary education –Decreases for university education

A Major Policy Concern Families may decide to send sons rather than daughters to school Jeopardizes MDGs, at least 2 Lower returns to females at primary level is puzzling – opposite situation in transition countries

Explanations Detrimental impact of discrimination and other factors –cause women to accept wage offers that undervalue their characteristics Better educated woman more able & willing to overcome sex handicaps & compete with men in labor market Male-female differences in quality of schooling (Dougherty 2005)

Chile, IALS Working women score higher on standardized test: 219 > 209 Women have more schooling: 10.5 > 9.3 But earn significantly less

Chile, IALS Working women score higher on standardized test: 219 > 209 Women have more schooling: 10.5 > 9.3 But earn significantly less Receive lower returns to Year of Schooling Males Females Returns to schooling

Chile, IALS Working women score higher on standardized test: 219 > 209 Women have more schooling: 10.5 > 9.3 But earn significantly less Receive lower returns to Year of Schooling And receive lower returns to Cognitive Ability Males Females Males Females Returns to schooling Standardized Score IALS

Explanations Women may choose to work in sectors where education is relatively highly valued Lower return to primary may be evidence of discrimination –such that women need to achieve more schooling in order to earn sufficient wages –or option value of schooling – since women are likely to perform better, stay in school longer, & experience higher returns for each year of schooling, then the most able go beyond primary schooling, thus depressing the returns at that level (Dougherty 2005)

Gender Differences Possible that differential returns due to different job opportunities available to men and women at each schooling level In Thailand, manufacturing jobs that pay more & require secondary have grown more rapidly for women (Hawley 2004; Phananiramai 1996; Kurian 1999) Jobs that require only primary (eg, construction), proportion of men may be higher because of tradition or labor intensity, so men have higher returns to primary

Conclusions Overall, returns high; justify public & private investment Differential returns signal problems in labor market –and need for further research –including program evaluations Lower returns to primary for women in developing countries a major policy concern –Jeopardizes MDGs, at least 2, limits overall benefits of women’s schooling Quality necessary, but not sufficient Enrollment incentives may be needed