Returns to Education in Ethiopia

Abstract

Previous studies on returns to education in Ethiopia have been fraught with endogeneity. Moreover, the non-linearity of returns to education has not been established on a national scale. Hence, this study measures the marginal private returns to education in Ethiopia using the latest National Labor Force Survey (NLFS) in 2013. It also examines the presence of non-linearity in the returns to education, particularly if sheepskin effects are evident at different levels of education. To address these objectives the study uses a Heckman selection model on adaptations of a Mincerian type earnings function. It finds that the average marginal returns to a year of schooling is 14.43%. The average marginal returns to a year of experience is 0.5%. The study also finds that schooling has increasing marginal returns whereas experience has decreasing marginal returns. Non-linearity in the returns to education is found to be a character of the returns to education profile in Ethiopia. A sheepskin effect of the returns to education is also established at different levels of education in Ethiopia. The highest rate of return to education is for basic education (completing Grade 4). However, the biggest dip in the rate of returns occurs for general primary education (completing Grade 8). These findings suggest that investing in education is still a profitable venture for private citizens as it exhibits increasing marginal returns.