Rates of Return to Higher Education Qualifications in Vietnam – A Hierarchical Linear Modelling Estimate
Author(s):
Lan Hoang (presenting / submitting)
Conference:
ECER 2017
Network:
Emerging Researchers' Group (for presentation at Emerging Researchers' Conference)
Format:
Paper

Session Information

ERG SES D 08, Quality and Education

Paper Session

Time:
2017-08-21
13:30-15:00
Room:
W3.10
Chair:
Christine Winter

Contribution

This is an exploratory study to estimate the rates of return to having higher education qualifications among wage earners in Vietnam. Using the hierarchical linear model (HLM), specifically adapting the Mincer internal rate of returns to education function and employing the data from the Vietnam Household Living Standard Survey (VHLSS) in 2012, the study found empirical evidence for higher rates of return to higher education qualifications. Adjusting for individual characteristics and the differences in the impacts of district types on the relationship between higher education qualifications and annual wage income and between economic sectors and income, there is not significant difference in the rates of return to higher education in different district types, although wage earners in urban districts are expected to have higher average income than those in non-urban districts. Nevertheless, it would be expected that the wage income gaps between public employees and workers in the private sector would be much smaller in urban districts than in non-urban districts. In other words, while higher education qualifications would be expected to offer higher private returns in both urban and rural areas, there is a differentiation in rates of return for workers in the public and private sectors in respective areas. The study offers an innovative application of the HLM model in estimating rates of return to higher education qualifications in the Vietnamese settings, which can be adapted to study other country cases. Furthermore, the results from the study suggest important policy implications regarding higher education provision and workforce development for Vietnam, specifically in terms of policies and incentives by local governments in attracting higher education qualification holders as well as expanding higher education provision.

Method

Human capital theory has evolved since the seminal work by Schultz (1961b) in which he argues that laborers become “capitalists” as they possess skills—stock of skills rather than physical stock—that have value. According to human capital theory, individuals invest in education rather than other activities because of the positive impacts of education on their future—that is, the returns from such an investment are exhibited in the market place, where individuals with more and better education are able to get higher wage thanks to their higher productivity (De Tray, 1986). Economic research regarding human capital often juxtaposes their arguments in human capital investment, which is education, as societal and individual returns. In Vietnam, empirical evidence is found in estimates of the rate of return to schooling, with a reported 11.43 percent increase of wages for an additional year of schooling among high school graduates (Nguyen Xuan Thanh, 2006). There is also evidence in the increase in wage premiums for tertiary qualifications in the period of 1992-1998, indicating higher premiums associating with the higher the education qualification (di Gropello & Sakellariou, 2010). This exploratory study examines the rates of return to higher education among Vietnamese wage earners. Specifically, the research seeks to answer the questions: (1) What are the rates of return to higher education qualifications as compared to high school graduates?; (2) Do the rates of return vary depending on the economic sectors in which the wage earners work?. The HLM model is employed to examine the effects of economic regions on the relationship between (a) higher education qualification and its rates of return, and (b) between economic sectors and the rates of return to education. The analysis in this study requires using two datasets, one at the individual level to estimate the internal rates of return to higher education, and one at the district level to estimate the effects of district economic characteristics in the rates of return estimates. This study employs two datasets, the individual level and the district level. The individual level includes the following variables: gender, region, qualification, years of experience, type of wage earners, and annual income in US dollar. The district level includes one variable: types of districts (urban and non-urban).

Expected Outcomes

The results from this study suggest that there is a high rate of returns to higher education. The study also offers empirical evidence that the types of districts, or the economic regions where the individuals work, do not have significant impacts on the relationship between education levels and annual wage income. While the level-1 analyses indicate that public employees, on average, earn less than workers in the private sector, the HLM analysis offers a seemingly contradictory evidence. In the HLM analysis, adjusting for the differences in the relationship between qualifications and wage income across districts, public employees are expected to earn about 13.8 percent higher than private workers. However, in urban districts, the slopes for public employees are flatter than those for private ones by -13.6 percent. This evidence, however, does not negate the evidence in the individual level analysis. In fact, it seems to indicate the important impacts of district types on the relationship between economic sectors and wage income. In urban districts where there is a vibrant private sector with a lot of economic activities and foreign direct investment, the public sector’s wage remuneration seems not as competitive as that of the private sector. On the other hand, in non-urban districts, the reverse is true—the public sector’s salaries tend to be higher than those offered in the private sector which consists of mostly agricultural and non-agricultural family business. In fact, the private sector’s average income across the nation might have been heavily influenced by the private sector’s average income in urban districts, which is reflected in the results from the level-1 analyses. When the analysis took into account the impacts of district characteristics on the relationship between economic sectors and annual wage income, the results seem to offer more accurate estimates.

References

Cohn, E., & Hughes, W. W. J. (1994). A Benefit-Cost Analysis of Investment in College Education in the United States: 1969-1985. Economics Education Review, 13(2), 109–123. De Tray, D. (1986). The contribution of economics to educational research and policy in less developed countries. Presented at the American Education Research Association Annual Meeting, San Francisco, CA. Di Gropello, E., & Sakellariou, C. (2010). Industry and skill wage premiums in East Asia (Policy Research Working Paper No. WPS5379). Retrieved from http://documents.worldbank.org/curated/en/2010/07/12583780/industry-skill-wage-premiums-east-asia FETP. (2013). Ho Chi Minh City Integrated Stock-Taking Exercise. Ho Chi Minh City, Vietnam: HKS Vietnam Program; Fulbright Economics Teaching Program (FETP); World Bank; HCMC Institute for Development Studies. Mincer, J. (1974). Schooling Experience and Earnings. New York: Columbia University Press. Moock, P. R., Patrinos, H. A., & Venkataraman, M. (1998). Education and earnings in a transition economy: The case of Vietnam. World Bank. Retrieved from http://siteresources.worldbank.org/EDUCATION/Resources/278200-1099079877269/547664-1099079934475/547667-1135281504040/Edu_Earnings_Transition_Econ.pdf Nguyen Xuan Thanh. (2006). Estimating the Rate of Return to Schooling: Evidence from Vietnam’s Education Reform. Ho Chi Minh City, Vietnam: Fulbright Economics Teaching Program. Psacharopoulos, G. (1973). Returns to education. San Francisco, CA: Jossey Bass-Elsevier Pub. Psacharopoulos, G., & Patrinos, H. A. (2004). Returns to investment in education: a further update. Education Economics, 12(2), 111–134. http://doi.org/10.1080/0964529042000239140 Schultz, T. W. (1961a). Education and economic growth. In N. B. Henry (Ed.), Social forces influencing American education (pp. 46–88). Chicago, IL: University of Chicago Press. Schultz, T. W. (1961b). Investment in Human Capital. The American Economic Review, 51(1), 1–17.

Author Information

Lan Hoang (presenting / submitting)
State University of New York, University at Albany
Educational Policy and Leadership
Ho Chi Minh

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