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This microform edition is protected against unauthorized copying under Title 17, United States Code. Bell & Howell Information and Learning Company 300 North Zeeb Road P. Box 1346 Ann Arbor, MI 48106-1346 Ana Corbacho All rights reserved Abstract Education, Income Distribution and Growth Ana Corbacho The dissertation studies the role of education in economic development for the case of Argentina. The first chapter reports retums to education in the Metropolitan Region of Buenos Aires during 1985-1997.
In 1991, several important macroeconomic re- forms were enacted. Previous to these reforms, returns at all levels of schooling followed similar trends. Since 1992, however, returns have risen particularly at the higher education level. Between 1974 and 1997 education and income inequality have increased in Argentina.
While children from a low-income family stop their schooling at the el- ementary level, wealthier students make it all the way to the university, enjoying the highest retums. The second chapter quantifies the impact of parents’ education, family income, gender and other factors on educational achievement. Income trans- fers would be effective in promoting attainment. However, these transfers would have a different impact depending on family background.
While the distribution of education of disadvantaged children would shift towards the high school level, the distribution of education of wealthier students would shift towards the university level. The successful educational experience of East Asia has encouraged policy- makers to recommend the re-allocation of public education expenditures towards the lower grades in Latin America, in order to reduce inequality and promote growth. The last chapter of the dissertation rigorously examines whether spending more on basic education is in fact a win-win strategy. Inequality declines but, if the gov- ernment faces a budget constraint, resources are diverted from higher education.
Eventually, overall income and growth may fall. The model is calibrated for three countnes in Latin America: Argentina, Mexico and Honduras. While the recom- mended policy would allow Honduras to increase welfare in all dimensions, Mexico would be able to reduce inequality only at the expense of a lower rate of techno- logical progress and a reduced level of aggregate income. Argentina would not en- counter a trade-off between inequality and growth, but would encounter a trade-off between inequality and income.
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k k t Ho Hàn tk n kh Vy cv xế 94 SA. an eee cence cence ees ¬ cece eee eee eenee 97 3.9 Tables and Figures. 111 il Acknowledgments I am grateful to my advisors Alessandra Casella, Kenneth L. Leonard and Aavier Sala-i-Martin for valuable comments and suggestions.
I am also grateful to Francisco Rivera-Batiz and Stephen P. Zeldes for participating in the Dissertation Defense. Mitali Das and Stephen Cameron provided useful guidance. I thank my friends Adriana, Bikas, Francisco, Manuel, Alex, Alberto, Nuno and Anne for their companionship and thoughtful advice throughout the Ph.
My family deserves special recognition for always being there for me, even if thousands of miles away. Ma, Pa, Matu, Alvaro, Sebas, Vally: Gracias por todo! Los quiero mucho. I am certain that without the love and patience of my husband, Andrés, I would not have been able to finish this dissertation. He has been my strongest supporter.
I will always be indebted to him. iil To Maria and Eduardo Introduction Human capital, as measured by the educational attainment of the population, has consistently emerged as an essential factor for economic growth and development. Edu- cation contributes to economic performance through several channels. At the micro level, more educated individuals are more productive and earn higher wages.
At the macro level, endogenous growth theories predict that investments in schooling will promote growth. Ed- ucation is also seen as a great equalizer: a better distribution of education contributes to a more equal distribution of income and enhances intergenerational mobility. The dissertation studies the role of education in economic development through these different perspectives for the case of Argentina. The first chapter estimates the returns to schooling, to quantify the wage gains implied by different education levels.
The second chapter studies the impact of family background on educational attainment, to understand the degree to which education and income inequality can be transmitted from generation to generation. The ultimate goal of the dissertation is the understanding of the effects of government expenditure policy on social welfare. The final chapter evaluates whether a re-allocation of public expenditures in education towards the lower grades would allow Argentina to achieve a more equal distribution of earnings, higher levels of aggregate in- come and faster technological progress. The experience of Argentina is contrasted to that of Mexico and Honduras.
Chapter 1 Gender Profiles in Returns to Education in the Argentine Metropolitan Region 1.1 Introduction Education is a key factor in economic development. It can help to reduce inequality, im- prove efficiency and promote social and political advancement. A critical issue when de- signing sound economic policies is the estimation of the economic value of education.! Rates of return to schooling can be useful to determine optimal levels of educational eX- penditures, investments in research and development and appropriate financing schemes for public education. The estimation of rates of return falls within the human capital approach to school- ing.” The key assumption in human capital theory is that individuals choose the level of education that maximizes the present value of lifetime earnings.
Additional schooling im- plies opportunity costs such us foregone eamings and direct expenses (tuition, books, etc. An individual will undertake extra years of education if the expected lifetime earnings com- pensate for these costs. He will choose the level of schooling that equates its return to the retum from other forms of investment. The standard human capital earnings function is: L See for instance Glewwe (1996).
Other models of schooling demand include signaling and con- sumption. See Stiglitz (1975) for an exposition of the signaling model and Lazear (1977) for an analysis on education as a consumption versus production good. See Willis (1986) for a general discussion.1 Introduction 3 J InYi = Ø, + đái + Bgzi + Byx7 +S Bykyi + v; (1.1) j=4 where Y is a measure of income, earnings or wage rates, s is a measure of educational attainment, like number of years of education, z is years of experience in the labor market, k; represents other observed factors that affect wages (gender, tenure, industry or type of occupation), and v is a disturbance, representing other unobserved forces.° The concavity of observed earnings profiles is captured by the quadratic experience terms ({3, is expected to be positive and (34 to be negative). The schooling coefficient, By, provides an estimate of the rate of return to education.
It measures the percentage extra eamings a worker would have for an extra year of education. Returns to education have been estimated for a number of countries." The evidence for the case of Argentina, however, is quite scarce. One exception is Pessino (1996), who estimates standard rates of return to schooling in the Metropolitan Region of Buenos Aires between 1986 until 1993. Major emphasis is given to the effects of hyperinflation and price stabilization on wage profiles.
This study does not include a number of controls that have been shown to be important in wage regressions like industry, occupation and size of the firm effects. This results in an overestimate of the return to education. Additionally it does not control for potential self-selection bias, arising from the use of a non-random sample in 3 Mincer's original earnings function (Mincer, 1974) included only education, experience and experience squared as independent regressors. Subsequent research in human capital promoted the inclusion of other factors, such as tenure, industry, occupation and size of the firm.
3 See Card (1994) for a review for the U. See Psacharopoulos (1994) for evidence for developing coun- tries. IDB (1999) provides recent estimtes for the Latin American region.1 Introduction 4 wage regressions (workers who choose to participate in the labor market). Finally, it only concentrates on returns for men.
This paper makes several contributions. It estimates rates of return to education for the Metropolitan Region for a longer period of time, from 1985 until 1997, and for both female and male workers. The econometric model follows Heckman (1979) and controls for self-selectivity into the labor market using an efficient Maximum Likelihood procedure. Wage equations include industry, occupation and size of the firm effects.
The inclusion of these controls decreases the return to education by almost three percentage points compared to Pessino’s estimates. The return to average years of education increased from 1985 until 1989, reaching 7. It plummeted in 1990 and started to recover considerably since 1991, particularly at the higher education level. Females have made great improvements in their labor market position.
Between 1991 and 1997 female labor force participation increased by nearly 20 percentage points. This was accompanied by a narrowing gender gap both in wage levels and returns to education. The return to education for female workers even surpassed that of male workers in 1995 and 1996. Throughout the whole period under analysis, the return to an extra year of elementary school has been fairly small, between 1% and 4%.
Between 1985 and 1991, the return to an extra year of secondary schooling oscillated around 8%, close to the return to an extra year of post-secondary schooling. Since 1992, Argentina has experienced a pattern of increasing returns. While returns at low and medium levels of education have stagnated at 2% and 6% 1.
