ESTIMATION OF PRIVATE AND SOCIAL RATES OF RETURN TO INVESTMENTS IN EDUCATION IN LATVIA
Keywords:Mincer rate of return, private and social rates of return, education, employment, economic growth
AbstractThe main aim of the paper is to evaluate the rates of return to investments in education at individual and society level as well. The task of the paper is to provide detailed analysis and estimation of the variables which impact the private and social rates of return. It is based on Professor Angel de la Fuente methodology complemented by Mincer earnings function and non-parametric DEA (Data Envelopment Analysis) method to estimate world technological frontier and the technological gap. For this purpose the authors build the matrix with respective years of schooling depending from level of schooling and birth of year taking into account the differences in schooling system since 1940ties. The authors have used the data of Labour Force Survey of Central Statistical Bureau of Latvia data 2010 for Mincer rate of return selecting the figures corresponding to the criteria of 6148 records, to estimate other variables the authors used mainly Eurostat data base and AMECO data base to obtain net capital stock to GDP at constant market prices. The methodology involves the estimation of several variables – net replacement ratio of unemployment benefits, employment levels of employees with secondary and tertiary education and increase of employment level from one additional year of schooling, average years of schooling based on R. Barro and J.W. Lee’s methodology, average retirement age based on D.Latulippe’s methodology, productivity growth from one additional year of schooling, taxes and unemployment level of youth. The private rate of return in 2006 was equal to 16.76%, in 2008 it was 12.82% and in 2010 it was 13.91% which shows the benefits of tertiary education as higher income and employment probability after financial investments in education. The results show that private rate of return to tertiary education has decreased before crisis. It can be explained by inadequate high wage levels of the individuals with lower education. The rate of return is twice higher as rate of return from investments in education in secondary education. The results of the survey confirm the positive impact of education at individual and societal level even during the crisis and that approves thesis that education has important role in achieving better and faster European integration.
Social evolution of Europe
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