Mincerian Earnings Function Research Articles

Estimating the Returns to Education Using a Machine Learning Approach – Evidence for Different Regions

Abstract This article revisits the Mincer earnings function and presents comparable estimates of the average monetary returns associated with an additional year of education across different regions worldwide. In contrast to the traditional Ordinary Least Squares (OLS) method commonly employed in the literature, this study applied a cutting-edge approach known as Support Vector Regression (SVR), which belongs to the family of machine learning (ML) algorithms. SVR is specifically chosen to address the bias arising from underfitting inherent in OLS. The analysis focuses on recent data spanning from 2010 to 2018, ensuring temporal homogeneity across the examined regions. The findings reveal that each additional year of education, on average, yields a private rate of returns of 10.4%. Notably, Sub-Saharan Africa exhibits the highest returns to education at 17.8%, while Europe demonstrates the lowest returns at 7.2%. Moreover, higher education is associated with the highest returns across the regions, with a rate of 12%, whereas primary education yields returns of 10%. Interestingly, women generally experience higher returns than men, with rates of 10.6 and 10.1%, respectively. Over time, the returns to education exhibit a modest decline, decreasing at a rate of approximately 0.1% per year, while the average duration of education demonstrates an increase of 0.16 years per year (1% per year). The application of the state-of-the-art ML technique, SVR, not only improves the accuracy of estimates but also enhances predictive performance measures such as the coefficient of determination (R 2) and Root Mean Square Error (RMSE) when compared to the OLS method. The implications drawn from these findings emphasize the need for expanding university education, as well as investments in primary education, along with significant attention toward promoting girls’ education. These findings hold considerable importance for policymakers who are tasked with making informed decisions regarding education expenditure and the implementation of education financing programs.

Who Gets the Highest Return to Distance Higher Education?

The economics of distance higher education have not attracted enough attention. Few studies have analyzed the different returns to distance higher education at various income levels. Based on empirical analysis of data from China Family Panel Studies (CFPS), this study explored the differences of return to distance higher education at different income levels by using Mincer earnings function and quantile regression. Compared with face-to-face education, the study found that distance higher education brought considerable benefits to learners. While the return to face-to-face higher education has continued to decline, return to distance higher education has risen. Comparing the returns to distance education at different income levels showed that low-income groups obtained greater benefits from distance higher education, which can help to improve the income of vulnerable groups and promote social equality. China’s distance education institutions should promote the idea that distance higher education can improve the income growth of low-income groups, and increase the financial support for low-income groups to access distance higher education.

Mincerian Earnings Function for Pakistan

Due to its central role in various debates about the detenninants of individual earnings, the Mincerian earnings function (MEF) as given in Mincer (1974) has attracted the attention of many economists. The MEF has been estimated virtually for every country except Pakistan, where a necessary condition has been missing, i.e., national level data on the exact number of years of schooling completed has not been available; instead, in a majority of the relevant micro-level surveys, schooling has been measured only in terms of a 'categorical' variable with possible values being 'Primary and Incomplete Middle', 'Middle and Incomplete Matric', etc. At best, this data deficiency has restricted the existing estimated earnings functions to what we refer to as the 'Dummies earnings functions' (DEF) since they are constrained to specify schooling in terms of a set of dichotomous dummy variables. Using a nationally representative data on male eameG, this study tries to fill the above gap by estimating the MEF both in its 'strict' as well as the 'extended' forms. In terms of the 'strict' MEF, i.e., the one analogous to Mincer's (1974) specification which essentially treats earnings as a function of schooling and job-market experience, the main fmdings are that the marginal rate of return to schooling is 8 percent, the experience- earnings profile is consistent with the pattern suggested by the human capital theory and as much as 41 percent of the variance in log earnings is accounted for by the strictly defined MEF. By and large, these findings are consistent with those implied by estimated MEFs for comparable LDCs. Further, the present study also estimates 'extended' MEF, whose specification supplements that of the 'strict' MEF by adding variables to control for urban vs rural background, occupational categories, employment status, and provincial heterogeneity. The 'extended' MEFs are also estimated separately for urban and rural samples and for each province. Formal 'Chow-type F tests' conducted to test for homogeneity of the parameters of MEF across different sub-samples reveal 'pervasive' segmentation across the above strata.

Estimating the returns to education in a chronically depressed labour market: the case of Kosovo

PurposeThis paper aims to investigate whether the conventional approach to estimating the private and social rates of return to education generates reliable findings when used in economies with chronically depressed labour markets.Design/methodology/approachConventional techniques (the Mincer earnings function and the discounting method) are used to provide initial estimates of the private and social returns to education in Kosovo. However, this study argues that in countries with chronically depressed labour markets, such as in Kosovo, the conventional approach is likely to significantly underestimate the private and social returns from achieving a higher level of educational attainment. This study extends the estimation approach to take into account the greater probability of more highly educated Kosovars being: employed, employed in the formal and public sectors and having longer job tenure.FindingsThe extended approach to estimating rates of return to schooling generates higher private and social rates of return to education than the conventional approach. Moreover, in contrast to the findings of the conventional approach, the revised approach suggests that private and social rates of return are highest from completion of upper secondary and tertiary education.Research limitations/implicationsThe results indicate that if governments in economies with chronically depressed labour markets decide upon their educational priorities based on unadjusted rates of return, then resources may be misallocated.Originality/valueThe analysis presented in this paper suggests that conventional approaches to estimating private and social rates of return to education are not suitable for use in economies with chronically depressed labour markets. In addition, the paper provides the first comprehensive analysis of the rates of return to education in Kosovo. These results are used to provide a critique of the Kosovo Government’s recent educational priorities.

Urban/rural disparities in the wage effect of additional vocational education after formal education: the case of the Philippines

ABSTRACT The aim of this study is to investigate and compare rural and urban returns to additional vocational education after completing formal education in the Philippines. We estimate the returns to additional vocational education after formal education in formal employment and also rural/urban disparities for each industry sector. The investigation of the wage effect is based on the Mincerian Earnings Function, initially using OLS estimations and then correcting for sample selection bias using the Heckman method. Preliminary findings confirm that the wage effect is associated with additional vocational education for those completing secondary education, and the effect is more pronounced in rural than in urban areas. Thus, our principal finding is that vocational education is potentially more useful in rural areas, especially for those completing secondary education in the Philippines and especially considering that only about 6% of the workforce has completed any vocational education.

ESTIMATING THE ECONOMIC RETURNS OF EDUCATION IN KSA BY USING MINCERIAN EARNINGS FUNCTION

This study aims to measure the economic rate of returns for investment in KSA. by using both basic and extended Mincerian Earnings Function. In addition to this, the comparison had been established between the results obtained and those of other researches in the same domain. We adopted in the research the model of Mincer in evaluating the rate of the economic returns according to previous classifications and the effective experience got by the individual in the work (measured by years). The result of the model application states that the economic return of university education in KSA has been improved by 10.35% based on the benchmark of Psacharopoulos International Return measured by 9.6%.Keywords: The individual Return, Earnings Function, Practical Experience, Theoretical ExperienceJEL Classifications: I26, J24, J16.DOI: https://doi.org/10.32479/ijefi.8659

Labor market segmentation and occupational mobility in Algeria: Repeated cross‐sectional and longitudinal analyses (2007 to 2012)

AbstractThe paper identifies the determinants and the patterns of occupational mobility across the formal/informal employment divide as well as within the informal sector. Cross‐sectional analyses are applied to two samples (1,252 and 2,026 individuals) from two representative household surveys conducted in 2007 and 2012 in Bejaia, an east‐central region of Algeria. In the first place, using a Mincer earnings function shows there is a substantial wage gap regarding the formal/informal wage employment divide. However, human capital theory applies to formal employees rather than to informal ones. Hence, labor market segmentation is not reducible to earnings functions. In the second place, a multinomial logit model captures the determinants of occupational mobility, which depend on the characteristics of individuals: age, gender, marital status, and human capital. Finally, the paper explores from a longitudinal perspective a cohort of 445 individuals both surveyed in 2007 and 2012. The aforementioned determinants explain the patterns of occupational mobility of active individuals who experience a change that improves or deteriorates their job position, while shifting in both directions across the formal and the informal sector and within the informal sector.

Estimating the Return of Higher Education in Algeria: Evidence From Adrar University

This study aims to measure the individual rate of return for investment in higher education at Adrar University by using both basic and extended Mincerian Earnings Function. In addition to this, the comparison had been established between the results obtained and those of other researches in the same domain.We adopted in the research the model of Mincer in evaluating the rate of the economic returns according to previous classifications and the effective experience got by the individual in the work (measured by years). The result of the model application states that the economic return of university education in Algeria has been improved by 8.49% based on the benchmark of Psacharopoulos International Return measured by 9.8%.We conclude that there is no general trend by which we can interpret the results but this lack of interpretation refers to the typical situation of the Algerian economy and its impact on the human capital (education specifically) as it is known that the relationship between the economic development and the human development is positive.

Gender Inequality in Wage Rate in Indonesia

Education is an indicator of advanced development, as education produces high quality human resources. However, the existence of gender gap in society causes low participation of women in education compared to men. This phenomenon happens due to various factors such as government policy, socio-economic, and culture. As such, this study aims to estimate the rate of return of gender-based school in Indonesia using Mincer earnings function. This study uses database Indonesia Family Life Survey (IFLS) 4 and 5. The two-step Heckman model of ordinary least square (OLS) is used for data analysis. The findings of this study are as follows. First, return to schooling is higher for male than female, for both service and manufacturing industries. Second, years of schooling, years of schooling interaction with manufacturing industril, years of schooling interaction with in service industril, the squared years of schooling interaction with manufacturing industril, the squared years of schooling interaction with service industril, gender interaction with service industril, gender interaction with manufacturing industril and urban/rural location are significantly influence return to schooling. While, squared years of schooling is not significantly influence return to schooling.

The Return on Investment for Higher Education in the United States

As the United States economy continues its recovery from the financial crisis, investments of all types are treated with higher levels of optimism. A college education is no exception; however, it does bring up the question of what the rate of return the investment of a college education provides an individual This paper attempts to build off of Mincer’s (1975), Cohn’s and Hughes’s (1994), Psacharopoulos’s (1994) and Athanassiadis’s (2011) research by first modeling the overall return on investment for higher education for full-time workers through a Mincer earnings function, and then determining the return on investment on earnings for workers across various time periods through “the short-cut method.”

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm's length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China's manufacturing sector.

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm’s length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China’s manufacturing sector.

Mincer Earnings Functions for the Netherlands 1962–2012

We extract estimation results on the Mincer earnings function from four earlier studies and add new results from a recent dataset. We check for differences related to differences in earnings concepts and in sampling frame, to reduce bias in intertemporal comparison. Jointly, the studies show a clear U-shaped development in the rate of return to education from 1962 to 2012, with a bottom in the 1980s. We explain this from Tinbergens’s race between suppy and demand (schooling and technology) and suggest this may be a widespread international pattern. Returns to potential experience show no marked time trend. The paper has been presented at the CPB-OCW Workshop “Returns to education: research and policy”, The Hague, December 17 2015. We are grateful to Bas ter Weel and Harry Patrinos for comments on an earlier version and to Wiljan van den Berge and Dinand Webbink for providing us with their data. We also thank two anonymous referees for useful suggestions.

BIAS GENDER DALAM TINGKAT PENGEMBALIAN INVESTASI PENDIDIKAN DI SUMATERA BARAT

This study aims to estimate the rate of return of gender-based school in West Sumatra using Mincer earnings function. This study uses database KOR SUSENAS West Sumatra in 2012 for collecting data. The two-step Heckman model of ordinary least square (OLS) is used for data analysis. The findings of this study are as follows. First, return to schooling is higher for male than female, for both service and manufacturing industries. Second, years of schooling, years of schooling interaction with manufacturing industril, years of schooling interaction with in service industril, the squared years of schooling interaction with manufacturing industril, the squared years of schooling interaction with service industril, gender interaction with service industril, gender interaction with manufacturing industril and urban/rural location are significantly influence return to schooling. While, squared years of schooling is not significantly influence return to schooling. Keywords : Mincerian Earnings Function; Gender; Return on schooling, Two Step Heckman model.

Mincer Earnings Functions for the Netherlands 1962-2012

We extract estimation results on the Mincer earnings function from four earlier studies and add new results from a recent dataset. We analyse differences related to differences in earnings concepts, in sampling frame and differences among studies that cannot be explained. Jointly, the studies show a clear U-shaped development in the rate of return to education from 1962 to 2012, with a bottom in the 1980’s. We explain this from Tinbergens’s race between suppy and demand (schooling and technology) and suggest this may be a widespread international pattern. Returns to potential experience show no marked time trend.

Intergenerational long-term effects of preschool-structural estimates from a discrete dynamic programming model

This paper formulates a structural dynamic programming model of preschool investment choices of altruistic parents and then empirically estimates the structural parameters of the model using the NLSY79 data. The paper finds that preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes. It also finds that a standard Mincer earnings function, by omitting measures of non-cognitive skills on the right-hand side, overestimates the rate of return to schooling. From the estimated equilibrium Markov process, the paper studies the nature of within generation earnings distribution, intergenerational earnings mobility, and schooling mobility. The paper finds that a tax-financed free preschool program for the children of poor socioeconomic status generates positive net gains to the society in terms of average earnings, higher intergenerational earnings mobility, and schooling mobility.

Rates of Returns to Vocational and General Upper Secondary Education, and to Experience in Addressing the Hollow Middle in lndonesia, 2007

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ESTIMATION OF PRIVATE AND SOCIAL RATES OF RETURN TO INVESTMENTS IN EDUCATION IN LATVIA

The main aim of the paper is to evaluate the rates of return to investments in education at individual and society level as well. The task of the paper is to provide detailed analysis and estimation of the variables which impact the private and social rates of return. It is based on Professor Angel de la Fuente methodology complemented by Mincer earnings function and non-parametric DEA (Data Envelopment Analysis) method to estimate world technological frontier and the technological gap. For this purpose the authors build the matrix with respective years of schooling depending from level of schooling and birth of year taking into account the differences in schooling system since 1940ties. The authors have used the data of Labour Force Survey of Central Statistical Bureau of Latvia data 2010 for Mincer rate of return selecting the figures corresponding to the criteria of 6148 records, to estimate other variables the authors used mainly Eurostat data base and AMECO data base to obtain net capital stock to GDP at constant market prices. The methodology involves the estimation of several variables – net replacement ratio of unemployment benefits, employment levels of employees with secondary and tertiary education and increase of employment level from one additional year of schooling, average years of schooling based on R. Barro and J.W. Lee’s methodology, average retirement age based on D.Latulippe’s methodology, productivity growth from one additional year of schooling, taxes and unemployment level of youth. The private rate of return in 2006 was equal to 16.76%, in 2008 it was 12.82% and in 2010 it was 13.91% which shows the benefits of tertiary education as higher income and employment probability after financial investments in education. The results show that private rate of return to tertiary education has decreased before crisis. It can be explained by inadequate high wage levels of the individuals with lower education. The rate of return is twice higher as rate of return from investments in education in secondary education. The results of the survey confirm the positive impact of education at individual and societal level even during the crisis and that approves thesis that education has important role in achieving better and faster European integration. DOI: http://dx.doi.org/10.5755/j01.eis.0.7.5088

Intergenerational Long Term Effects of Preschool: Structural Estimates from a Discrete Dynamic Programming Model

This paper formulates a structural dynamic programming model of preschool investment choices of altruistic parents and then empirically estimates the structural parameters of the model using the NLSY79 data. The paper finds that preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes. It also finds that a standard Mincer earnings function, by omitting measures of non-cognitive skills on the right hand side, overestimates the rate of return to schooling. From the estimated equilibrium Markov process, the paper studies the nature of within generation earnings distribution and intergenerational earnings and schooling mobility. The paper finds that a tax financed free preschool program for the children of poor socioeconomic status generates positive net gains to the society in terms of average earnings and higher intergenerational earnings and schooling mobility.

Returns for Education in Kosovo: Estimates of Wage and Employment Premia

Returns for Education in Kosovo: Estimates of Wage and Employment PremiaThis paper provides an analysis of the returns for education in Kosovo using data from a Household and Labour Force Survey. We argue that given the high unemployment rate in Kosovo, employed individuals may not be randomly selected from the labour force. Therefore, the estimates of the rates of returns for education based on the standard Mincerian earnings function may be biased downwards. Hence, the Heckman sample selection model is implemented, which adjusts the estimates of the wage equation for the self-selection of individuals into employment. We estimate the rate of returns for level of education and for years of education. We find relatively low rates of returns for education in terms of wage premia and argue that in countries with chronic labour market disequilibria (such as in Kosovo), the returns for education may be in terms of employment premia. To our knowledge, this is the first systematic study of these issues in this post-socialist and post-conflict economy.