The per-pupil annual costs of providing education is equal to the sum of foregone earning costs (column 1 in Table A2.2) and direct costs (column 2 in Table A2.2). In order to find the complete investment costs of educating one individual, the total costs are multiplied by the number of years required to complete each level of education; namely: primary education (6 years), junior secondary (3 years), and senior secondary (3 years).

**Table A2.3. Unit Costs of Education by Education Level and Spending Unit (in thousand Rupiah)**

||**Primary**|**Junior High**|**Senior High**|
|---|---|---|---|
|School|1,864|2,771|3,612|
|Sub-district|57|0|0|
|District|170|153|125|
|Province|159|141|117|
|Central Gov.|54|376|261|
|Total|2,304|3,441|4,115|

_Source_ : Ghozali (2005) Bab 5 Hasil dan Pembahasan, p. 83. Inflation rate 2005=10.5 percent 2006= 12.8 percent.

# _Limitations of this approach and future research on the topic_

It is important to note that several other studies in education social rates of return report rates of return of significantly different magnitudes. A recent study UNESCO (2007), for example, reports returns for primary education in the range of 27 percent in rural areas, and 5 percent, in urban areas. Several studies report rates of return that include only the private market returns to education in the form of "increased earnings". These estimations involve the fitting of a semi-log ordinary least squares regression using the natural logarithm of earnings as the dependent variable, and years of schooling and potential years of labor market experience and its square as independent variables. Authors often label these coefficients “returns to education,” whereas these are "marginal wage effects", not rates of return to investment in education. “The “returns” notion necessitates taking into account the cost of education, both private and public, and relating this cost to the wage effect (Psacharopoulos 1994, p. 1326).

The figures reported in this estimation do not include non-market benefits (effects on health, life expectancy, population growth, etc) or externality feedback effects (the additional economic benefits from the initial education outcomes, such as the effects of education on the economy through democratization, political stability, etc.). Both of these are without doubt part of the social benefits. As pointed out by Mc Mahon (2006) “the value of additional non-market benefits is estimated by Wolfe and Zuvekas (1997) to be about equal in value to the market returns based on the cost of producing the same outcomes by alternative means.” This means that the rates of return estimated in this report could be considerably lower than the true total returns to economic development from investment in education. An additional point to note is that, the National Labor Survey reports earnings of organized labor markets. Some studies reveal the need to use real output (bushels of rice produced) to measure real income of farmers, as opposed to urban wages. Jamison, foe example, concludes that farm productivity increases in average by 7.4 percent as a result of a farmer completing elementary education which could considerably increase the rates of return.

Taking some of the considerations discussed above into account would scale up the education rates of return reported by a percentage dependant on the numbers of effects incorporated, the methodology employed, and the assumptions made. The estimations presented herein result from a methodology that includes private and public costs of education, following the "elaborated" methodology described in Psacharopoulos (1994), and employed by McMahon and Boediono (1992). The team that conducted this report did not extend the scope of the basic methodology, but have marked such type of exercises as part of an agenda for future research.

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