4. Estimated returns to schooling are higher for women than for men.

5. Returns to schooling have declined very modestly over time despite rising average levels of schooling attainment, suggesting that the world demand for skills has been increasing as the world skill supply has also increased.

All but one of these findings survive our analysis and that is point 3; in fact, tertiary education now displays the highest average private rates of return.

As discussed by Psacharopoulos and Patrinos (2004), the stylized facts presented above are based on compilations of studies that may not be strictly comparable. There are two main sources of non-comparability: data sample coverage and methodology. First, survey samples may not accurately reflect population means. For cost or convenience, surveys may concentrate on subpopulations that are easier or less expensive to reach, focusing on firms rather than households, or concentrating on urban populations while excluding rural residents. Second, studies rarely use the same model to estimate returns. Variation in control variables used can affect estimated returns, as can variation in the estimation strategy used. Both of these problems make it possible for observed variation in estimated returns to be due to these differences in sample design or estimation method and not to the true variation in returns.

Another methodological limitation is that researchers often include in the regression model many independent variables (Becker (1964). This procedure leads to a lower estimated effect of education on earnings. While researchers who include other variables in earnings functions do so because they are interested in modeling earnings, not necessarily in estimating the rate of return to schooling, this nevertheless leads to biased estimates when the schooling coefficient is interpreted as a rate of return.

This paper presents new and comparable estimates of the private returns to schooling (and to potential experience) using data from 139 economies with a total of 819 harmonized household surveys. The sample includes several economies for which there is more than one survey available. Private rates of return are used to explain the behavior of individuals in seeking different education levels. Estimates of the returns to schooling and to potential experience are a useful indicator of an individual’s productivity. This evidence can be used to guide public policy in the design of programs and crafting of incentives that both promote investment in education and ensure that low-income families make those investments.

The paper sets out to describe the patterns and trends using the same specification and estimation procedure by making use of harmonized country surveys and by using comparable methods. This effort to compile comparable estimates addresses the issues in the literature such as by holding constant (i) the definition of the dependent variable; (ii) the variables used as controls; (iii) sample definitions; and (iv) estimation method for all the surveys in the sample. The results show (i) that the returns to schooling and potential experience are more concentrated around their respective means than previously thought; (ii) the basic Mincerian model used is more stable that one may have expected; (iii) the 3