Returns to Education: an updated international comparison

The question of the profitability of investing in human capital remains controversial. Three main methods for estimating the rate of return to investment in education are described: the elaborate method, the earnings function method, and the short-cut method. Application of cost-benefit analysis measures in 44 countries yields four patterns that have important policy implications: (i) top priority should be given to primary education as a form of human resource investment due to high returns, both social and private; (ii) secondary and higher education should also be pursued in a program of balanced human resource development; (iii) the larger discrepancy between the private and social returns in higher education indicates room for private finance at the university level; and (iv) falling returns to education that result as a country develops and/or the capacity of its educational system expands are minimal under time-series analysis and do not warrant abandonment of educational expansion.