UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS ************************ VIETNAM- NETHERLANDS PROGRAMME FOR M. 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--·----- _- _ ---- -- l F:D CV:: _---.t Academic Supervisor ' Dr. NGUYEN HOANG BAO HO CHI MINH CITY, 2010 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co 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:. UAN VAN CHAT LUONG download : add luanvanchat@agmail.co • 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 am indebted to all teachers and staffs of the Vietnam- Netherlands Program at the University of Economics Ho Chi Minh city. Karel Jansen, Assoc. 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 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ---------------- - - - - - - • 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. 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 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co -------,---- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CONTENTS Page CERTIFICATION. ix LIST OF TABLES. X LIST OF FIGURES.
xi Chapter 1: Introduction 1.2 Objectives of the thesis .3 Research question and research hypothesis .4 Data and methodology .5 Organization of the research. 4 Chapter 2: Literature review 2.2 Rate of return .2 The link between education and farm productivity .3 The relationship between education and income. 8 iv UAN VAN CHAT LUONG download : add luanvanchat@agmail.4 The theory for human capital .1 Measuring the cost .2 Measuring the benefits of education .3 The internal rate ofreturn to schooling .5 Mincerian earnings function methods .2 Review of empirical studies .1 Impact of schooling and education levels to earning .2 Gender disparity on rate of return to education .3 Regional disparity on rate of return to education .4 Economic sector of employment disparity .5 Impact of education on earnings Vietnam. 24 Chapter 3: Methodology and analysis framework 3.2 Definition of variables and measurement 3.3 Data set and variable measurement.4 Steps to estimate parameter in regression model.
3 5 Chapter 4: Empirical analysis and research results and discussions 4.1 Overview of education on earning in Ben Tre province v UAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Educational level of workers .3 Human resource of Ben Tre province .5 Number of workers .2 Descriptive analysis and hypothesis .1 Educational status and labor structure in Ben Tre province .2 Others general information of workers .3 Earnings of workers classified by categories 4.1 Earnings classified by education level .2 Earnings classified by gender .3 Earnings classified by regions .4 Earnings classified by sectors .4 Empirical results of effects of education on earnings 4.1 Estimation of rate of return with model 1 .2 Estimation of rate of return with model 2. 47 Chapter 5: Conclusions and policy recommendations 5.3 Limitations of the research and further study suggestions. 53 vi UAN VAN CHAT LUONG download : add luanvanchat@agmail.co APPENDICES Appendix 4.1 Geographic of Ben Tre province, period 2004-2006 .2 Gini coefficients in the Mekong Delta .3 Region population of Ben Tre province, period 2005-2006 .4 Population structure of Ben Tre province, period 2004-2006 .5 Population density of Ben Tre province in 2005 in comparison with other provinces of Mekong Delta .6 Working population and employment of Ben Tre province, period 2005-2006. 7 Frequencies classified by educationallevel.8 Frequencies classified by sectors .9 Meaning of earnings classified by educational level.1 0 Meaning of earnings classified by gender .11 Meaning of earnings classified by regions .12 Meaning of earnings classified by sectors .13 Estimation results of model 1 .14 Estimation results ofmodel2 .15 t-test year schooling and sectors .16 t-test experience and gender .17 t-test year schooling and gender .18 t-test working time and sectors .19 t-test working time and regions.
70 vii UAN VAN CHAT LUONG download : add luanvanchat@agmail.20 t-test working time and gender .21 t-test land cultivated size and regions .22 Oneway working time and educational level. 72 • viii UAN VAN CHAT LUONG download : add luanvanchat@agmail.co 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 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co LIST OF TABLES Page Table 2.1 Summarize the main results of the past studies .1 Summary and defines dependent variable and all independent variables .1 Means of per capita income classified by educational level .2 Means of per capita income classified by gender.3 Means of per capita income classified by regions .4 Means of earnings per capita income classified by sectors .5 Estimation results of model 1 .6 Estimation results ofmodel2. 7 Rate of return of earnings of each educationallevel. 47 X UAN VAN CHAT LUONG download : add luanvanchat@agmail.co LIST OF FIGURES Page Figure 2.1 Effect of education on farm production .2 Effect of year of schooling on earnings .3 Stylized age-earnings profile of secondary and university graduates .4 Relationship between education and income level .1 The structure of educational level in Ben Tre province.
40 xi UAN VAN CHAT LUONG download : add luanvanchat@agmail.co CHAPTER I INTRODUCTION 1. PROBLEM STATEMENT Living standard level is different from everywhere, Knight and Sabot (1990) stated that there was an inequality of income among households. In the rural areas, there is a lot of households which are living in poor condition due to low income. Vietnam is considered as one of the poor countries in the world.
The average income level is just about one dollar per head per day, and 20.0 percent of population living below poverty line (GSO, 2006). Therefore, the improvement of income is very important, especially for poor households to escape from present bad situation. The benefits of formal education have been known for a long time. Mincer (1974) showed that the benefits of formal education on individual earnings.
Lucas (1988) proved that benefits of education within a village known as the side effect. Moreover, education can benefit the entire country at national level. In short, education can benefit people from individual, household, local community, and country level. The positive relationship between education of a worker and his/her earnings and productivity has been witnessed in many countries (Schultz, 1988).
In addition, educational attainment and earnings inequality still prevails between men and women, rural and urban areas, and between the public and private sectors as well. These issues require further understanding and examine the linkage between education and earnings. Ben Tre province, located at the downstream of the Mekong River's basin, is known for agriculture-based society. This is one of the smallest inland area 2,315 squared kilometres among Mekong Delta region, but its population density ranks at the fourth place.
GDP growth rate in 2001-2005 is of 9. The income per capita is of 4.5 million in 2006 and 950 USD in 2010. In terms of education level, the literacy ratio of Ben Tre province's population is of UAN VAN CHAT LUONG download : add luanvanchat@agmail. The labor force accounts for 72.73 percent of the population (BSO, 2006).
However, the quality of this labor force is poor in terms of education and in terms of working skills. In 2006, 60 percent of the labor force is unskilled labor. Only 30 percent of the workers get vocational certificates (BSO, 2006). Although there is high literacy (97.4 percent), the general education level of population is still at low rate (52 percent) household heads under primary school.
In addition, the numbers of poor households accounted for 18 percent of the total households in Ben Tre province and reduce to less than 10 percent in 2010 (BSO, 2006). The opening of Rach Mieu's bridge in 2008, connecting Ben Tre province to other provinces, and socio-economic conditions of human capital, and comparative advantage to reduce the poverty rate and improve income of its people in Ben Tre province. Thus, how to raise people's income is a big concern. While the benefit of education has been generally demonstrated, the benefit of education to income is not clearly explored.
This socio-economic context inspired researcher to conduct a study on the effects of education on earnings in Ben Tre province. 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 to education levels. Especially, it also takes into account the differences in returns to education by controlling wage differences, geographical regions, economic sectors, and gender in order to draw out policy implication for education development in Ben Tre province. To fulfill these objectives, rates of return to education are used as an instrument to measure educational effects on earnings.
It is commonly recognized that higher education is tantamount to higher earnings, or in another words earnings positively relate to education.