The returns to education in Indonesia: Post reform estimates
The profitability of an investment in education in Indonesia has been a discussed issue for the past decades. Both Deolalikar (1993) and Duflo (2001) provided comprehensive estimates of returns to investment in education in Indonesia and both of them argued that schooling was a profitable investment...
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| Format: | Journal Article |
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Tennessee State University College of Business
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/13858 |
| _version_ | 1848748459789647872 |
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| author | Purnastuti, Losina Salim, Ruhul Joarder, Munim |
| author_facet | Purnastuti, Losina Salim, Ruhul Joarder, Munim |
| author_sort | Purnastuti, Losina |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | The profitability of an investment in education in Indonesia has been a discussed issue for the past decades. Both Deolalikar (1993) and Duflo (2001) provided comprehensive estimates of returns to investment in education in Indonesia and both of them argued that schooling was a profitable investment. This paper updates the evidence on the profitability of an investment in education in Indonesia, using OLS and IV approaches. It describes the statistical relationship among market earnings, years of schooling, age and job tenure (experience), and quadratics of age and tenure, marital status, male-female and rural-urban dummies. In the analysis, we use primary data from the Indonesian Family Life Survey 4 (IFLS4). IFLS4 is a nationally representative sample comprising 13,536 households and 50,580 individuals, spread across provinces on the islands of Java, Sumatra, Bali, West Nusa Tenggara, Kalimantan, and Sulawesi. The earnings function is estimated on three samples: a combined sample of males and females (with a female intercept shift term), and separate samples of male and female workers. The empirical results show that the returns to schooling in Indonesia are 4.72 per cent for the combined sample, 4.36 per cent for males, and 5.26 per cent for females.However, the relationship between years of schooling and earnings is not statistically significant in any of the IV estimations. We also make comparisons with the findings of Duflo (2001), based on earlier data for 1995. These comparisons enable an assessment of any changes in the ability bias over this period of market reform. The IV estimates are the same as, or greater than, the OLS estimates. This is consistent with the literature for developed countries, and suggests that ability does not attract a wage premium but may be correlated with the instruments. Although adopting the IV approach increases the estimated returns to schooling in Indonesia, these returns remain low compared to other Asian as well as less developed countries. Therefore, the market-oriented economic reforms that has been going on over the past several decades should be evaluated by the policy makers considering whether these reforms generating higher jobless growth or not and take proper policy measure, if there is any. |
| first_indexed | 2025-11-14T07:05:23Z |
| format | Journal Article |
| id | curtin-20.500.11937-13858 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T07:05:23Z |
| publishDate | 2015 |
| publisher | Tennessee State University College of Business |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-138582017-09-13T15:02:44Z The returns to education in Indonesia: Post reform estimates Purnastuti, Losina Salim, Ruhul Joarder, Munim Experience Returns to Schooling Earnings Instrumental Variable The profitability of an investment in education in Indonesia has been a discussed issue for the past decades. Both Deolalikar (1993) and Duflo (2001) provided comprehensive estimates of returns to investment in education in Indonesia and both of them argued that schooling was a profitable investment. This paper updates the evidence on the profitability of an investment in education in Indonesia, using OLS and IV approaches. It describes the statistical relationship among market earnings, years of schooling, age and job tenure (experience), and quadratics of age and tenure, marital status, male-female and rural-urban dummies. In the analysis, we use primary data from the Indonesian Family Life Survey 4 (IFLS4). IFLS4 is a nationally representative sample comprising 13,536 households and 50,580 individuals, spread across provinces on the islands of Java, Sumatra, Bali, West Nusa Tenggara, Kalimantan, and Sulawesi. The earnings function is estimated on three samples: a combined sample of males and females (with a female intercept shift term), and separate samples of male and female workers. The empirical results show that the returns to schooling in Indonesia are 4.72 per cent for the combined sample, 4.36 per cent for males, and 5.26 per cent for females.However, the relationship between years of schooling and earnings is not statistically significant in any of the IV estimations. We also make comparisons with the findings of Duflo (2001), based on earlier data for 1995. These comparisons enable an assessment of any changes in the ability bias over this period of market reform. The IV estimates are the same as, or greater than, the OLS estimates. This is consistent with the literature for developed countries, and suggests that ability does not attract a wage premium but may be correlated with the instruments. Although adopting the IV approach increases the estimated returns to schooling in Indonesia, these returns remain low compared to other Asian as well as less developed countries. Therefore, the market-oriented economic reforms that has been going on over the past several decades should be evaluated by the policy makers considering whether these reforms generating higher jobless growth or not and take proper policy measure, if there is any. 2015 Journal Article http://hdl.handle.net/20.500.11937/13858 10.1353/jda.2015.0174 Tennessee State University College of Business fulltext |
| spellingShingle | Experience Returns to Schooling Earnings Instrumental Variable Purnastuti, Losina Salim, Ruhul Joarder, Munim The returns to education in Indonesia: Post reform estimates |
| title | The returns to education in Indonesia: Post reform estimates |
| title_full | The returns to education in Indonesia: Post reform estimates |
| title_fullStr | The returns to education in Indonesia: Post reform estimates |
| title_full_unstemmed | The returns to education in Indonesia: Post reform estimates |
| title_short | The returns to education in Indonesia: Post reform estimates |
| title_sort | returns to education in indonesia: post reform estimates |
| topic | Experience Returns to Schooling Earnings Instrumental Variable |
| url | http://hdl.handle.net/20.500.11937/13858 |