Expected Life-earnings Paths with and without Higher Education: The case of India

Abstract

The paper analyses students' expectations of earnings with and without higher education at three career points: at entry to the labour force, at the five year point, and career peak, constructing paths of expected earnings. The estimated expected internal rates of return to investment in different types of higher education are quite high. Considering ratios of expected peak-year to entry earnings, the highest gradient is in the case of specialised/professional education. Similarly for the case of students of urban origin as compared with those of semi-urban or rural origin. Likewise, the gradient is relatively high in the case of students with an English medium of study compared with the case of students with Punjabi or Hindi. As expected, the gradient is higher for those who aspire to higher education than those who do not, in all three types of higher education. The association between expected peak earnings and the proportion of gains in earnings that take place in the first five years is negative in all cases; only expectations of sustained growth in earnings lead to the highest predicted peak earnings levels. The regression results suggest that socio-economic background, social capital, ability, and school-related variables significantly influence the formation of expectations about earnings.