Who Gains More from Education? A Comparative Analysis of Business, Farm and Wage Workers in India

Abstract

The economics literature on returns to education has focused largely on wage workers, thereby ignoring a sizable section of the workforce which is self-employed. This paper presents the estimates of private returns to education for business, farm and wage workers in India using a nationally representative household survey. The paper addresses the sample-selectivity issue arising due to endogenous sector allocation in the earnings equation using the multinomial-selection approach. Our results show that the average rate of return to education is higher for wage workers followed by business and farm workers. Focusing only on wage workers would provide an overestimate of returns by 30 per cent for business workers and by 40–50 per cent for farm workers. Further, the profile of returns across the education ladder varies perceptibly for the three type of workers with higher education being more rewarding for wage workers.