Returns to Education: an updated international comparison

Abstract

The question of the profitability of investing in human capital remains controversial. Three main methods for estimating the rate of return to investment in education are described: the elaborate method, the earnings function method, and the short-cut method. Application of cost-benefit analysis measures in 44 countries yields four patterns that have important policy implications: (i) top priority should be given to primary education as a form of human resource investment due to high returns, both social and private; (ii) secondary and higher education should also be pursued in a program of balanced human resource development; (iii) the larger discrepancy between the private and social returns in higher education indicates room for private finance at the university level; and (iv) falling returns to education that result as a country develops and/or the capacity of its educational system expands are minimal under time-series analysis and do not warrant abandonment of educational expansion.