Effects of education on earnings the case of ben tre province

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY VIETNAM THE HAGUE THE NETHERLANDS VIETNAM — NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS EFFECTS OF EDUCATION ON EARNINGS: THE CASE OF BEN TRE PROVINCE By Mr NGUYEN MINH QUANG A Thesis Submitted in Partial Fulfillment of the Requirements of the Degree of MASTER OF ARTS IN DEVELOPMENT Academic Supervisor Dr NGUYEN HOANG BAO HO CHI MINH CITY, 2010 CERTIFICATION I certify that the substance of this dissertation has not already been submitted for any degree and is not being currently submitted for any other degree I certify that to the best of my knowledge any help received in preparing this dissertation, and all sourced used, have been acknowledged in this dissertation NGUYEN MINH QUANG , ACKNOWLEDGEMENT To be able to complete this thesis, I have been received a great support from many people Firstly, I would like to express my appreciation and special thanks to Dr Nguyen Hoang Bao, the author’s supervisor, who has been giving me very valuable instruction, advising and comments for the successfulness of my thesis Secondly, I arr indebted to all teachers and staffs of the Vietnam — Netherlands Program at the University of Economics Ho Chi Minh city Especially, Assoc Prof Karel Jansen, Assoc Prof Nguyen Trong Hoai for their best supports and valuable comments Thirdly, I would like to express sincere thanks to Dr Nguyen Huu Dung who has provided valuable comments and instructions for completion of this thesis Fourthly, I am grateful to my manager and colleagues for their encouragement and support during my study duration Fifthly, I would like to express my special thanks to all my friends, especially Mr Le Cong Tain, and Mr Tran Nam Quoc having given me a lot of valuable opinions and support in the process of my thesis completion Finally, I am indebted to my family and others who gives me great encouragement and support for my study ABSTRACT Education is considered as one of the main factors help people to find the job, break out poverty and improve incomes of individuals and households To understand how the education levels effect on earnings and rates of return to education, Ben Tre province in the Mekong Delta is chosen as a case study in this study Data of 143 workers, aged from 15 to 60 years and having earnings are draw from Vietnam household living standard survey (VHLSS) 2006 The theory of human capital and Mincer earnings functions (1974) are employed in this research Estimation results show that among explanatory variables such as schooling years, education levels, working hours, cultivated land size, gender, and sector have significant effects to earnings One more schooling year helps to increase earnings of workers by 5.63?fi Person, work in public sector, obtain higher education level and earnings than those works in private sector Similarly, higher education and earnings are found for male workers than those of female workers The fact that increases in working hours has positive effects to earning are a reasonable result Meanwhile, region and experience of workers have no significant effects to earnings From the results of this research, some policies will be suggested to increase individual income through the improvement of individual education factors Rates of return to education are not linearly with education levels Highest rate of return is found for secondary school level Findings from this research confirm the benefit of education on earnings of workers, and rates of returns are not the same for levels of education, which are similar to research results of their studies CONTENTS Page CERTIFICATION i ACKNOWLEDGEMENTS ii ABSTRACT CONTENTS LIST OF FIGURES xi Chapter 1: Introduction 1.1 Problem statement 1.2 Objectives of the thesis 1.3 Research question and research hypothesis 1.4 Data and methodology 1.5 Organization of the research Chapter 2: Literature review 1.1 Key definitions 2.1.1.1 Human capital .5 2.1.1.2 Rate of return 2.1.2 The link between education and farm productivity 2.1.3 The relationship between education and income 2.1.4 The theory for human capital 10 2.1.4.1 Measuring the cost .13 2.1.4.2 Measuring the benefits of education .13 2.1.4.3 The internal rate of return to schooling 14 2.1.5 Mincerian earnings function methods 17 1.6 Other methods 19 2.2 Review of empirical studies 20 2.2.1 Impact of schooling and education levels to earning 20 2.2.2 Gender disparity on rate of return to education 21 2.2.3 Regional disparity on rate of return to education 22 2.2.4 Economic sector of employment disparity 22 2.2.5 Impact of education on earnings Vietnam 23 2.3 Chapter remarks 24 Chapter 3: Methodology and analysis framework 3.1 Model specification .27 3.2 Definition of variables and measurement 3.2.1 Dependent variable 29 3.2.2 Independent variable 29 3.3 Data set and variable measurement .33 3.4 Steps to estimate parameter in regression model 35 Chapter 4: Empirical analysis and research results and discussions 4.1 Overview of education on earning in Ben Tre province 4.1 I Geographic 36 4.1.2 Educational level of workers 37 4.1.3 Human resource of Ben Tre province 4.1.5 Number of workers .39 4.2 Descriptive analysis and hypothesis 39 4.2.1 Educational status and labor structure in Ben Tre province 40 4.2.2 Others general information of workers 41 4.3 Earnings of workers classified by categories 4.3.1 Earnings classified by education level 41 4.3.2 Earnings classified by gender .42 4.3.3 Earnings classified by regions 42 4.3.4 Earnings classified by sectors .42 4.4 Empirical results of effects of education on earnings 4.4 I Estimation of rate of return with model 43 4.4.2 Estimation of rate of return with model .45 4.5 Chapter remarks 47 Chapter 5: Conclusions and policy recommendations 5.1 Main findings 49 5.2 Policy recommendations .50 5.3 Limitations of the research and further study suggestions 52 REFERENCES 53 APPENDICES Appendix 4.1 Geographic of Ben Tre province, period 2004-2006 63 Appendix 4.2 Gini coefficients in the Mekong Delta .63 Appendix 4.3 Region population of Ben Tre province, period 2005-2006 .63 Appendix 4.4 Population structure of Ben Tre province, period 2004-2006 64 Appendix 4.5 Population density of Ben Tre province in 2005 in comparison with other provinces of Mekong Delta .64 ' Appendix 4.6 Working population and employment of Ben Tre province, period 2005-2006 65 Appendix 4.7 Frequencies classified by educational level .65 Appendix 4.8 Frequencies classified by sectors .65 Appendix 4.9 Meaning of earnings classified by educational level 65 Appendix 4.10 Meaning of earnings classified by gender 66 Appendix 4.11 Meaning of earnings classified by regions .67 Appendix 4.12 Meaning of earnings classified by sectors .67 Appendix 4.13 Estimation results of model 67 Appendix 4.14 Estimation results of model 68 Appendix 4.15 t-test year schooling and sectors 68 Appendix 4.16 t-test experience and gender 69 Appendix 4.17 t-test year schooling and gender 69 Appendix 4.18 t-test working time and sectors 70 Appendix 4.19 t-test working time and regions .70 Appendix 4.20 t-test working time and gender .71 Appendix 4.21 t-test land cultivated size and regions .71 Appendix 4.22 Oneway working time and educational level 72 64 Ca Mau 520.15 Total Mekong Delta 3,973.87 13.09% 1,219.40 100.00% 17,267.40 7.1% 234.00 100.0% 435.00 Source: 2005 Statistic Yearbook, General Department of Statistics Appendix 4.6: Working population and employment of BenTre province period 2005-2006 Criteria 2005 2006 2010 1,356.03 905.9 668% 1,362.07 914.96 67.2% 40.0% 821.33 89.77% 781.70 57.39% 643.45 82.3% 51.24 6.6% 81.85 10.5% 100.64 12.25% 1,384.09 952.1 68.8% 50.0% 854.6 89.80% 748.48 54.08% 616.7 82.4% 53.1 7.1% 78.7 10.5% 106.2 12.40% Unit (People) Total population Total working-age population Skilled workers Social workers 1000 % %38.6% 1000 813.2 %89.80% 1000 713.88 Economic workers 52.64% 588.7 1000 Agro-forest-fishery sectors Industry, construction sectors %82.5% 1000 Services sector Unemployed 49.8 %7.0% 1000 75.3 %10.5% 1000 Source: BSO (2008) 99.3 %12.20% Appendix 4.7: Frequencies classified bv educational level Education level Valid l 00 2.00 Frequency 53 56 Percent 37 39.2 Valid Percent 37 39.2 Cumulative Percent 37 76.2 3.00 21.0 21 97.2 100.0 4.00 TOtd 2.8 2.8 143 I 00.0 l 00.0 Appendix 4.8: Frequencies classified by sectors Cumulative SECTOR Valid Total Frequency 121 Percent 84.6 Valid Percent 84.6 22 15.4 15.4 143 100.0 100.0 65 Percent 84.6 I 00.0 Growthrates 01-05 06-10 2.39% 1.00% 2.61% 1.00% 0.91% 0.95% 0.92% 0.93% 0.87% 1.29% 0.86% 0.87% 25.05% 1.35% • Appendix 4.9: Meaning of earnings classified by educational level EARNING Sum of Squares Between Groups Within Groups Total Df Mean Square F 738945126.229 246315042.076 4404385265.673 139 31686224.933 514333039 I 902 142 Sig 7.774 Post Hoc Tests education level significant SCHCODE SCHCODE 2.00 • Std Error Sig 95% Confidence Interval 2.00 3.00 -867.0276 4713.1824(*) I 078.73942 1286 10295 423 000 Lower Bound -2999.8872 -7256.0365 Upper Bound I 265.8319 -2170.3 283 4.00 1.00 3.00 4.00 1.00 10002.8491(*) 867.0276 3846.1548(*) -9135.8214(*) 4713.1824(*) )846.1548(*) 2918.80276 1078.73942 1273.59057 2913.31112 1286.10295 1273.59057 001 423 003 002 000 003 -15773.8408 -1265.8319 -6364.2697 -14895.9553 2170.3283 1328.0399 -4231.8573 2999.8872 -1328.0399 -3375.6876 7256.0365 6364.2697 5289.6667 10002.8491(*) 9135.8214(*) 5289.6667 2996.29166 080 -11213.8678 634.5345 2918.80276 2913.31112 2996.29166 001 002 080 4231.8573 3375.6876 -634.5345 15773.8408 14895.9553 11213.8678 2.00 4.00 X Mean Difference 1.00 2.00 3.00 • The mean difference is significant at the 05 level Oneway Descriptives EARNING Std N • , 1.00 2.00 3.00 4.00 Total 53 56 30 143 Mean Deviation Std Error 5722.1509 6589.1786 10435.3333 15725.0000 7330.2657 6673.27137 4143.71732 5690.20179 8273.40115 6018.35829 916.64432 553.72752 1038.88396 4136.70058 503.28040 95% Confidence Interval Minimu Maximu for Mean Lower Upper Bound Bound in in 720.00 300.00 1200.00 7900.00 300.00 46325.00 19300.00 26150.00 27200.00 46325.00 3882.7695 5479.4838 8310.5771 2560.1725 6335.3755 7561.5323 7698.8733 12560.0896 28889.8275 8325.1560 Appendix 4.10: Meaning of earnings classified by gender GENDER Levene Test Significa F EARN Equal variances Not Equal variances ,483 df rice ,488 ,290 ,297 141 107,270 t-test for Equality Mean Std Sig(2Differe Error tailed) rice Diff ,772 ,767 307,535 1058,8 2531 307,535 1034,4 4369 95% Confidence Interval of the Difference Lower Upper 1785,6 8941 1743,0 6921 2400,7 6080 235 8, l 405 I 66 • Appendix 4.11: Meaning of earnings classified by regions t-test for Equality of Means Sig F t Mean Differen ce Std Error Difference 257 2062.83 97 1813.303 l 39 l 2062.83 97 2316.8915 Sig (2tailed) df 95% Confidence Interval of the Difference Lower EARNING Equal variances assumed Equal variances 2.639 06 1.138 890 not 141 12.14 1521.93 636 2978.59 744 assumed • A Upper 5647.61 575 04.27 683 endiE 4.12: Meaning of earnings classified by sectors Levene Test SECTOR EARN t-test for Equality Significa nce F df Sig(2tailed) Equal variances ,771 ,381 Not Equal variances 4,499 141 4,447 28,877 ,000 Mean Std 95% Confidence Interval of the Differe rice Error Diff Difference Lowe upper 5889,4 380 1309,0 2250 3301,5 9021 8477,2 8582 5889,4 1324,4 3180, l 8598,6 380 26 9274 8325 Appendix 4.13: Estimate results of model - Model 1: regress lnearn yr_schl exp exp_sqr gender region sector ld_size lnwkhr Source | SS . - - + Model | 41.4443031 Residual | - - + Total | 72.625627 - . - Coef .0563826 exp | 02l6323 exp_sqr | -.0004374 gender | ’ MS 85.18053789 134 54l982291 2313729 | -.0361665 | 7266l06 | -.0490072 | 5462615 | 5.343804 Std Err .0233459 0l71918 0003172 1301154 2277134 2107235 019l946 l166431 6780295 Number of obs F(8, 134) Prob > F R-squared Adj R- squared ROOt MSE 114.06993142.803309367 lnearn || yr_schl region sector ld_size lnwkhr cons df 2.42 1.26 -1.38 1.78 -0.16 3.45 -2.55 4.68 7.88 67 0.017 0.210 0.170 0.078 0.874 0.001 0.012 0.000 0.000 [95% Conf .0102085 - 012370l -.0010647 -.0259727 -.4865439 3098362 -.0869708 3155619 4.00278 = 143 = 9.56 = = - 0.0000 0.3633 0.3253 = 73619 Interval] 1025567 0556347 00019 4887184 4142l09 1.143385 -.0110435 7769612 6.684828 Breusch-Pagan / Cook-Weisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of lnearn chi2(1) = — A 0.35 Prob > chi2 0.5553 endiE 4.14: Estimate results of model Model 2: regress lnearn level_2 level_3 level_4 exp exp_sqr gender region sector ld_size lnwkhr Model R Adjusted S uare RS uare Std Error of the Estimate 687180041379 '.649(a) 421 377 615 a Predictors: (Constant), LNWKHR, LEVEL_2, GENDER, EXP, SECTOR, LD_SIZE, REGION, LEVEL 4, LEVEL 3, EXP_SQR ANOVA(b) Model uasd 45.299 RegresSiOn Residual Total 10 62.333 132 J oz631 142 Mean Square 4.530 472 F 9.593 Sig .000(a) a Predictors: (Constant), LNWKHR, LEVEL_2, GENDER, EXP, SECTOR, LD SIZE, REGION, LEVEL 4, LEVEL 3, EXP_SQR ‘ b Dependent Variable: LNEARN Breusch-Pagan / Cook-Weisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of lnearn chi2(1) — 0.32 Prob > chi2 0.5720 Appendix 4.15: T-Test year schooling and sectors YR_SCHL 22 Mean I 1.41 Std Deviation 3.081 Std Error Mean 657 121 6.03 112 283 N SECTOR Independent Samples Test Levene's Test for Equality of Variances F Sig t df t-test for Equality of Means Std Mean Error Sig (2Differe Differe rice rice tailed) 95%« Confidence Interval of the Dfrence Lower Upper 68 YR SCHL Equal variances assumed Equal 264 608 variances not assumed 7.465 141 000 5.38 720 3.952 6.800 7.517 29.336 000 5.38 15 3.914 838 Appendix 4.16: T-test experience and gender T-Test experience and gender EXP GENDE R Std Error N Mean Std Deviation Mean 50 23.28 12.352 1.747 93 22.02 11.581 1.201 Independent Samples Test Levene's Test for Equality of Variances F EXP Equal variances assumed Equal variances not assumed Sig I 228 270 t-test for Equality of Means t _ df Sig (2tailed) Mean DiffCr º nce Std Error Differe q ‹e 95% Confidence Interval of the Difference Lower Upqer 605 14 I 546 1.26 2.079 -2.85 l 5.368 594 94.960 554 1.26 120 -2.950 5.467 Appendix 4.17: T-Test year schooling and gender YR_SCHL GENDER 50 Mean 16 Std Deviation 4.363 Std Error Mean 617 93 6.70 3.230 335 N Independent Samples Test Levene's Test for Equality of Variances F YR_SCHL Equal variances assumed Equal 6.916 Sig .009 t-test for Equality of Means t df Sig (2tailed) Mean Differe rice Std 95% Error Differs rice Confidence Interval of the Difference Lower Upper 718 141 474 46 642 -.809 I 73 I 657 78.494 513 46 702 -.936 l 859 69 » Appendix 4.18: T-Test working time and sectors WORKTIME Std Error N SECTOR I Mean Std Deviation Mean 22 129.8182 51.11671 10.89812 121 152.4711 71.01257 6.45565 Independent Samples Test Levene's Test for Equality of Variances t-test for E uality of Means ‘ WORKTIME , Equal variances assumed Equal 1.219 271 variances not assumed -1.429 -1.788 141 155 37.515 082 Upper Lower - 15.8572 22.6529 22.6529 12.6666 8.6958 54.001 61 48.306 14 Apjiendix 4.19: T-Test working time and regions WORKTIME Std Error N REGION I Mean Std Deviation Mean 12 164.8333 75 18926 21.70527 13l 147.5344 68 16725 5.95580 Independent Samples Test Levene's Test for Equality of Variances t-test for Equality of Means td Mean Error 95% Confidence Lower WORKTIME Equal variances assumed Equal variances not assumed 134 715 834 141 405 769 I 2.713 456 17.299 20.732 74 23.688 23 17.299 ' 22.507 56 31.437 59 Upper 58.286 20 66.035 70 Appendix 4.20: T-Test working time and gender WORKTIME Std Error N GENDER Mean Mean Std Deviation 50 152.4600 74 10726 10.48035 93 147.1183 65.89911 6.83342 ’ Independent Samples Test Levene's Test for Equality of t-test for E uality of Means Variances F WORKTIME Equal variances assumed Equal 421 Sig t 18 442 427 variances not df Mean Differe rice Sig (2tailed) 141 659 90.780 670 5.3417 5.3417 Std 95% Confidence Interval of the Difference Error Differe rice Lower Upper I 2.0760 18.531 29.215 25 ''5 I 19.51 assumed 8I 31 30 194 75 Appendix 4.21: T-Test land cultivated size and regions REGION LD_SIZE Std Error N I Mean Std Deviation Mean 12 18333 4.253092 I 227762 13I 3.96586 3.330919 29l024 Independent Samples Test Levene's Test for Equality of Variances t-test for Equality of Means × F LD_SIZE Equal variance s assumed Equal variance 000 Sig .992 t df Sig (2tailed) Mean Differe rice Std Error Differen ce 95% Confidence Interval of the Difference -.760 141 448 78253 1.02903 2.81686 -.620 12.26 546 78253 1.26178 3.52508 l 25 96002 ' 71 Appendix 4.22: Oneway working time and educational level WORKTIME Std N 1.00 2.00 Mean 145.1132 149.3929 Confidence Interval Minimu Maximu for Mean Lower Upper Bound Bound in in 8.80838 9.89076 127.4379 129.5713 162.7885 169.2144 35.00 40.00 280.00 392.00 Deviation 3.00 53 §6 64.12598 74.01564 157.3333 70.44359 12.861 18 13 I 0293 183.6374 64.00 360.00 4.00 132.0000 46.41839 23.20919 58.1380 205.8620 88.00 176.00 Total i 43 148.9860 68.66729 5.74225 137.6347 160.3374 35.00 392.00 ANOVA WORKTIME Sum of Squares Between Groups Within Groups Total df 4048.628 665509.351 139 669557.979 142 Mean Square 1349.543 4787.837 F 282 838 ... education on earnings in Ben Tre province 1.2 OBJECTIVES OF THE THESIS The purpose of this study is to analyze the effects of education on earnings of workers, and to examine the rates of return... studies on the effect of education on earnings The chapter begins with some key definitions that are frequently used in theories Then, the second section presents relevant theories on the links of education. .. level of education In the case of university education, the control group comprises of individuals of secondary education FEtDm data in age -earnings profile, it is possible to calculate rate of