Are There Social Returns to Education in Developing Countries? Evidence from Indonesia

Abstract

Despite growing public-sector investment in education in developing economies, there are few studies that have examined the efficacy of these investments. In this paper, we estimate social returns to education in Indonesia, using individual-level data on wages from five waves of the Indonesia Family Life Surveys (1993–2014) and subdistrict-level data on average education levels from the National Socioeconomic Survey (SUSENAS), a large-scale national-level socioeconomic survey. Our identification strategy rests on the within-sibling variation in average education levels, which is generated because our analysis includes a large sample of siblings who live in different subdistricts. Using sibling fixed effects, we find that a 1-year increase in average education results in a 6%–8% increase in wages. Our results are robust to several robustness checks, including the addition of several controls for labor demand conditions and adjustments for potential measurement error in individual-level education.