The importance of human capital in affecting growth has long been recognized. However, a recent policy research working paper A Primer on Human Capital by World Bank Group provides an up-to-date summary of some of the key findings linking human capital and income growth. Human capital is a broad concept, which includes not only education but also medical care, and early childhood interventions. However, this blog focuses only on the findings related specifically to education.
Returns to Investing in Education
Returns to education have been estimated on numerous countries and over long time periods.
Early findings by Barro and Sala-i-Martin suggest that each one-year increase in male secondary schooling is linked to an estimated increase in country-wide economic growth of 1.1%. Notably compare to primary education it is secondary and higher education that are most responsible for the positive impact on growth (Barro and Sala-i-Martin (1995), chapter 12, page 431.).1
Working with data from 149 countries, Montenegro and Patrinos (2014) estimated that, on average, one additional year of schooling is associated with a 9.7% increase in earnings; with higher increases for women than men (11.4% with respect to 9.1%). However, they find wide variations between countries and over time: returns range from more than 25% to less than 1%.2
According to the working paper by Eduardo Zepeda the average monthly gross earnings of Kenyans who graduated from primary school is below the internationally recognized absolute poverty line of 37.5 USD per month (1.25 USD per day). In contrast to that, Kenyans who graduated from secondary school earn on average 80 USD per month. This is more than twice the income, which defines absolute poverty and is almost a tripling of income compared to Kenyans who dropped out or never started with their high school education.3
Country variation remains substantial also in the results found by Caselli (2015) which collects findings from different authors on 87 countries in the mid-1990s and 91 countries in the mid-2000s. Regional patterns by world regions over time show stable returns to Europe and Central Asia (about 7%) and in Africa and the Middle East (about 8%); a decrease in returns in Latin America and the Caribbean (from more than 10% in the 1990s to about 8% in the 2000s); and an increase in returns in South-East Asia and the Pacific (from about 8% in the 1990s to more than 10% in the 2000s.)4
Various studies have also attempted to estimate the interaction between education and other human capital components, such as health, crime, and political participation. Some results report very large effects. For example, Lochner and Moretti (2004) conclude that an extra year of completed schooling is associated with a 10-15% reduction in incarceration rates. Brunello et al. (2013) estimate that years of schooling have a causal effect on the body mass index (BMI) of women living in nine European countries: one additional year of schooling reduces the BMI by 1.84%. Last but not least, Heckman, Humphries, and Veramendi (2016) estimate the link between schooling decisions and health status and smoking behavior. In particular, completing College compared to dropping out from High School reduces the probability of smoking by more than 17%.5
In conclusion, returns are generally positive in virtually all countries and periods. However, they vary over time within the same country. And last but not the least returns to education decisions are not limited to income but include nonproduction benefits, such as impacts on health, crime, and political participation.
These are just a few reasons why at Aiducation, we believe in investing in education. We know that the only thing more expensive than investing in education is not investing in education. That is why we are dedicated to continue our work and reach as many young talents as possible so that they can grow and help their communities.
Written by Shorena Messerli
Primary Source: Flabbi, Luca; Gatti, Roberta V.. 2018. A primer on human capital (English). Policy Research working paper; no. WPS 8309. Washington, D.C.: World Bank Group
- Quoted in Flabbi , Luca; Gatti, Roberta V. A primer on human capital (English). Policy Research working paper; World Bank Group, no. WPS 8309. Washington, D.C. (2018):9
- Quoted in Flabbi , Luca; Gatti, Roberta V. A primer on human capital (English). Policy Research working paper; World Bank Group, no. WPS 8309. Washington, D.C. (2018):15
- Facts and Figures: Our Impact in Numbers, Aiducation, accessed November 25, 2018, http://www.aiducation.org/en/our-impact/facts-and-figures.html
- Quoted in Flabbi, Luca; Gatti, Roberta V. A primer on human capital (English). Policy Research working paper; World Bank Group, no. WPS 8309. Washington, D.C. (2018):15
- Ibid p.16