Arellano S, M. S., & Braun Ll, M. (1999). Rentabilidad de la educación formal en Chile

Braun, M., & Arellano, M. S. (1999). Rentabilidad de la Educación Formal en Chile. Cuadernos de Economía Latin American Journal of Economics, 36.

Abstract

In this paper the economic return to formal education in Chile is estimated. The construction of an earnings-profile for each education level is a basic ingredient in the computation of the rate of return. The paper uses a much larger sample than previous studies both in terms of the number of observations and its geographic representation. Moreover, the method allows the return of the marginal schooling year to be different among each educational level, resulting in more accurate estimates and better policy recommendations. The earnings-profiles also provide basic information to the computation of human capital stock in the country. One additional schooling year is associated with an average increase in labor earnings of12%, although the effect is very different on each level (bigger in higher levels and lower in preparatory). A positive relationship between educational attainment and the probability of being employed is found. Considering both the effects on earnings and employment, from a private point of view, we obtain a rate of return of 16.2% to preparatory schooling, 12.2% to general high school, 13.6% to vocational high school, 17.7% to college and 14.7% to technical education. The existence of subsidies and income taxes decreases both the rates of return figures and the difference among them. The social rates of returns result in 10% (preparatory), 11.2% (general high school), 11.8% (vocational high school), 15.4% (college) and 14.9% (technical). Exogenous increases in real wages change the absolute rates of return but not the relative figures. A real growth of 2% a year in wages results in rates of return between 15% and 25% higher to each educational level. Failure to complete each level on the official number of years lowers the rates of return significantly. The option to proceed to higher levels of education that lower levels provide, implies a big increase in the Yate of return to preparatory and high school.