# _Flat Returns_

While skill supply increased, has is kept up with demand? If demand is outpacing supply, one would expect to see the wage gap between workers with skills and without skills to increase. Figure 24.A (all wage workers) and Figure 24.B (monthly wage workers only) suggest that, first, more education is associated with higher wages at any point in time; and, second, real monthly wages trended upward until 1996, fell during the crisis, and remained roughly constant since, especially for secondary or higher education levels. Wage data from the national Socio-Economic Surveys (SES) from 1986 to 2002 for wage workers confirms this pattern, although the actual wage time series differ somewhat (Figure 24.C).

Combining wages and education, it is possible to estimate returns to education over time using Mincer regressions. In its most basic form, log hourly wages are regressed on education, controlling for age, aged squared, gender, province and urbanization.<sup>21</sup> Figure 24.D shows the coefficients on education levels from a series of such cross-sectional regressions for wage workers. Education is divided into six attainment levels (less than primary, primary, lower secondary, upper secondary, vocational and university) and the returns are estimated relative to workers with less than primary education, the omitted category. The returns relative to less than primary education are flat over time and there is no trend towards higher wage differentials across skill levels. If anything, there is a small downward shift of returns to university post crisis.

A robustness check is to restrict the sample to workers on a monthly payroll, in case rising returns are restricted to workers in regular employment. Again, there are no signs of rising returns to skills (Figure 24.E), apart from modest increases for primary and vocational education. The wage premium to university is even higher, but again, the returns to education look fairly stable over time. Using years of schooling instead of education level, the returns equal to 12.2 in 2002, compared to 12.7 in 1986 and 11.7 in 1996 (top line in Figure 24.F).<sup>22</sup> This is roughly comparable to other countries. For example, Psacharopoulos and Patrinos (2002) give 14.7 percent for Brazil, 10.3 percent for Argentina, 12.6 percent for the Philippines, and 9.4 percent for Malaysia, but the comparisons are problematic due to differences in data, methodology, and years.

21 The calculation yields, under certain conditions, private returns. Social returns would require incorporating the public costs of providing education net of any external effects (through endogenous growth other channels) of education (Psacharopoulos 1995). The analysis makes no attempt at measuring these effects, implicitly assuming that they have not changed differentially across skill levels over time.

22 The returns to education levels are calculated using Kennedy (1981). Blunch (2004) reports similar estimates using SES data from 1994 to 2002. He notes that returns are overall lower with household fixedeffects, although the gradient remains similar. This comes at a cost of dropping household weights and households with one wage worker. Similarly, Hawley (2004) finds with LFS data from 1985, 1995 and 1998 that for the group of 24 to 35 year-old wage workers an additional year of schooling provides has a return of 11 percent. The return remained stable over the period.

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