Returns to Education in the Philippines

Type Working Paper
Title Returns to Education in the Philippines
The recent increase in secondary and post-secondary school enrolment rates in several countries,
due to their rapid economic growth, has led to a resurgence of studies done in the area of private
returns to education in the human capital theory literature. Current developments in education
policy in the Philippines raises questions on the true effectiveness of our education structure in
improving individuals‟ private returns. Luo and Terada (2009), for example, report that the
unemployment rate is considerably higher for the better-educated Filipinos.
Various empirical studies have used straightforward regressions which include earnings
equations being estimated by using ordinary least squares (OLS) and sophisticated modelling
procedures that are based on instrumental variables (IV). Such estimated coefficients capture the
effect of education on earnings on the average; however, the returns to education may also differ
across the wage distribution. Evidence based on quantile regression (QR) methods suggests that
the returns are higher for those in the top decile of the income distribution compared to those in
the bottom decile (Harmon, Oosterbeek and Walker, 2003). Punongbayan (2012), using quantile
regression, finds that returns to education in the Philippines are higher for individuals who
receive lower wages but did not account for sample selection.
In this paper, we aim to investigate the level of private returns to education and how it varies
across individuals in the Philippines, while accounting for selection bias. Using the October
rounds of the Philippine Labor Force Survey (LFS) from 2008-2012, we find that there is a
selection bias arises when fitting in a OLS regression. By applying the Heckman Selection
Procedure to remove the selection bias and running a QR regression, results showed across all
quantiles, college level returns are higher than elementary and high school levels. This may
account larger demand for higher educated and more specialized laborers. Returns are also
higher for individuals receiving higher wages, which may signify inequality between earnings
and education.

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