Effects of education on earnings , the case of ben tre province

************************ 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 ECQNOMJGS · - _- 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 Date: • 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 am 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 Tam, and Mr Tran Nam Quae 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 ii • 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% 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 iii CONTENTS Page CERTIFICATION i ACKNOWLEDGEMENTS ii ABSTRACT iii CONTENTS iv ABBREVIATION ix LIST OF TABLES X 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 2.1 Theoretical framework 2.1.1 Key definitions 2.1.1.1 Human capital 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 iv 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 ofreturn to schooling 14 2.1.5 Mincerian earnings function methods 17 2.1.6 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 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 Chapter 4: Empirical analysis and research results and discussions 4.1 Overview of education on earning in Ben Tre province v 4.1.1 Geographic 4.1.2 Educational level of workers 4.1.3 Human resource of Ben Tre province 4.1.4 Labor force 4.1.5 Number of workers 4.2 Descriptive analysis and hypothesis 4.2.1 Educational status and labor structure in Ben Tre province 4.2.2 Others general information of workers 4.3 Earnings of workers classified by categories 4.3.1 Earnings classified by education level ·~ 4.3.2 Earnings classified by gender 4.3.3 Earnings classified by regions 4.3.4 Earnings classified by sectors 4.4 Empirical results of effects of education on earnings 4.4.1 Estimation of rate of return with model 4.4.2 Estimation of rate of return with model 4.5 Chapter remarks Chapter 5: Conclusions and policy recommendations 5.1 Main findings 5.2 Policy recommendations 5.3 Limitations of the research and further study suggestions REFERENCES vi 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 Frequencies classified by educationallevel 65 Appendix 4.8 Frequencies classified by sectors 65 Appendix 4.9 Meaning of earnings classified by educational level .65 Appendix 4.1 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 ofmodel2 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 vii 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 • viii 72 ABBREVIATION BSO Ben Tre Statistical Office GDP Gross Domestic Product GSO General Statistical Office HCEF Human Capital Earnings Function OLS Ordinary Least-Squared Estimation ROR Rate of return to education VHLSS Vietnam Household Living Standard Survey VND Vietnamese Dong USD United States Dollar ix Can Tho city Hau Giang An Giang Kien Giang Soc Trang Bac Lieu 64 CaMau Total Mekong Delta Source: 2005 Statistic Yearbook, General Department of Stattsttcs Appendix 4.6: Working population and employment ofBenTre province period 2005-2006 No Criteria Total population Total working-age population Skilled workers Social workers Economic workers Agro-forest- fishery sectors Industry, construction sectors Services sector Unemployed Source: BSO (2008) Appendix 4.7: Frequencies classified by educational level Education level Valid 1.00 2.00 3.00 4.00 Total Appendix 4.8: Frequencies classified by sectors SECTOR Valid I Total 65 Appendix 4.9: Meaning of earnings classified by educational level EARNING Between Groups Within Groups Total Post Hoc Tests education level significant (I) SCHCODE 1.00 2.00 3.00 4.00 • The mean difference is significant at the 05 level Oneway EARNING N 1.00 2.00 3.00 4.00 Total Appendix 4.10: Meaning of earnings classified by gender GENDER EARN Equal variances Not Equal variances 66 Appendix 4.11: Meaning of earnings classified by regions EARNING Equal variances assumed Equal variances not assumed Appendix 4.12: Meaning of earnings classified by sectors SECTOR EARN Equal variances Not Equal variances Appendix 4.13: Estimate results of mod ell Modell: regress lnearn yr_schl exp exp_sqr gender region sector ld_size lnwkhr - - 67 Breusch-Pagan I Cook-Weisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of lneam chi2(1) 0.35 Prob > chi2 = 0.5553 Appendix 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 649(a) a Predictors: (Constant), LNWKHR, LEVEL_2, GENDER, EXP, SECTOR, LD_SIZE, REGION, LEVEL_4, LEVEL_3, EXP_SQR I Model Regression Residual Total a Predictors: (Constant), LNWKHR, LEVEL_2, GENDER, EXP, SECTOR, LD_SIZE, REGION, LEVEL_4, LEVEL 3, EXP_SQR - b Dependent Variable: LNEARN Breusch-Pagan I Cook-Weisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of lneam chi2(1) Appendix 4.15: T-Test year schooling and sectors I YR_SCHLI SECTOR 68 I EXP YR SCHL Equal variances assumed Equal variances not assumed Appendix 4.17: T-Test year schooling and gender I Appe ndix 4.16: Ttest expe rienc e and gend er YR SCHL GEND T-Test expenence an YR SCHL Equal varianc assume Equal EXP varianc not assume 69 • f Appendix 4.18: T-Test working time and sectors • WORKTIME -~ - In d epen d ent s amp1esI T est WORKTIME } Appendix 4.19: T-Test working time and regions WORKTIME WORKTIME 70 • Appendix 4.20: T-Test working time and gender WORKTIME ' ' WORKTIME If Appendix 4.21: T-Test land cultivated size and regions I - I LD_SIZE REGION I LD_SIZE 71 • Appendix 4.22: WORKTIME Total WORKTIME Between Groups Within Groups • Total • ' - 72 ... socio-economic context inspired researcher to conduct a study on the effects of education on earnings in Ben Tre province 1.2 OBJECTIVES OF THE THESIS The purpose of this study is to analyze the effects. .. group The control group refers to individuals of the previous, adjacent level of education In the case of university education, the control group comprises of individuals of secondary education. .. 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