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Beyond the mincer equation: the internal rate of return to higher education in Colombia

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  • García Suaza, Andrés Felipe
  • Guataqui, Juan Carlos
  • Guerra, José Alberto
  • Maldonado, Darío

Abstract

In order to present an estimation of the Internal Rate of Return (IRR) to higher education in Colombia we take advantage of the methodological approach provided by Heckman, Lochner and Todd (2005). Trying to overcome the criticism that surrounds interpretations of the education coefficient of Mincer equations as being the rate ofreturn to investments in education we develop a more structured approach of estimation, which controls for selection bias, includes more accurate measures of labor income and the role of education costs and income taxes. Our results implied a lower rate of return than the ones found in the Colombian literature and show that the Internal Rate ofReturn for higher education in Colombia lies somewhere between 0.074 and 0.128. The results vary according to the year analyzed and individual´s gender. This last result reinforces considerations regarding gender discrimination in the Colombian labor market.

Suggested Citation

  • García Suaza, Andrés Felipe & Guataqui, Juan Carlos & Guerra, José Alberto & Maldonado, Darío, 2009. "Beyond the mincer equation: the internal rate of return to higher education in Colombia," Documentos de Trabajo 5745, Universidad del Rosario.
    • Handle: RePEc:col:000092:005745
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    References listed on IDEAS

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    1. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2003. "Fifty Years of Mincer Earnings Regressions," NBER Working Papers 9732, National Bureau of Economic Research, Inc.
    2. Ira N. Gang & Catherine Y. Co & Myeong-Su Yun, 2002. "Self-Employment and Wage Earning: Hungary During Transition," Departmental Working Papers 200219, Rutgers University, Department of Economics.
    3. Thomas Lemieux, 2006. "The “Mincer Equation” Thirty Years After Schooling, Experience, and Earnings," Springer Books, in: Shoshana Grossbard (ed.), Jacob Mincer A Pioneer of Modern Labor Economics, chapter 11, pages 127-145, Springer.
    4. Carlos Felipe Prada, 2006. "¿Es rentable la decisión de estudiar en Colombia?," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 24(51), pages 226-323, June.
    5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    6. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 7, pages 307-458, Elsevier.
    7. Nohora Yulieth Forero Ramírez & Luis Fernando Gamboa Niño, 2007. "Cambios en los retornos de la educación en Bogotá entre 1997 y 2003," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 66, pages 225-250, Enero-Jun.
    8. Fabio Sanchez & Jairo Nunez, 2003. "A dynamic analysis of human capital, female work-force participation, returns to education and changes in household structure in urban Colombia, 1976-1998," Colombian Economic Journal, Academia Colombiana de Ciencias Economicas, Colegio Mayor de Nuestra Senora del Rosario, Pontificia Universidad Javeriana, Universidad de Antioquia, Universidad de los Andes, Universidad del Valle, Universidad Externado de Colombia, Universidad Nacional de Colombia, vol. 1(1), pages 109-149, December.
    9. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    10. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, March.
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    Cited by:

    1. Fabiola Saavedra & Mónica Ospina, 2014. "Decisions about Postsecondary Education, their returns in Colombia," Documentos de Trabajo CIEF 12542, Universidad EAFIT.
    2. Felipe Lozano R., 2009. "Evaluating An Alternative To Finance Higher Education: Human Capital Contracts In Colombia," Revista de Economía del Rosario, Universidad del Rosario, November.
    3. Baez, Javier E. & Camacho, Adriana, 2011. "Assessing the Long-term Effects of Conditional Cash Transfers on Human Capital: Evidence from Colombia," IZA Discussion Papers 5751, Institute of Labor Economics (IZA).
    4. Guataqui, Juan Carlos & García Suaza, Andrés Felipe & Rodríguez, Mauricio, 2009. "Estimaciones de los determinantes de los ingresos laborales en Colombia con consideraciones diferenciales para asalariados y cuenta propia," Documentos de Trabajo 5756, Universidad del Rosario.
    5. M. Antonella Mancino & Leonardo Fabio Morales & Diego F. Salazar, 2023. "Signaling Worker Quality in a Developing Country: Lessons from a Certification Program," Borradores de Economia 1259, Banco de la Republica de Colombia.
    6. Gustavo Canavire-Bacarreza & Luis C. Carvajal-Osorio, 2020. "Two Stories of Wage Dynamics in Latin America: Different Policies, Different Outcomes," Journal of Labor Research, Springer, vol. 41(1), pages 128-168, June.
    7. Andrés Álvarez & Juan Camilo Chaparro & Carolina González & Santiago Levy & Darío Maldonado & Marcela Meléndez & Natalia Ramírez & Marta Juanita Villaveces, 2022. "Reporte ejecutivo de la Misión de Empleo de Colombia," Documentos de trabajo 20156, Escuela de Gobierno - Universidad de los Andes.
    8. Alexandra Pineda-Guerrero & Francisco J. Escobedo & Fernando Carriazo, 2020. "Governance, Nature’s Contributions to People, and Investing in Conservation Influence the Valuation of Urban Green Areas," Land, MDPI, vol. 10(1), pages 1-20, December.
    9. de Roux, Nicolás & Riehl, Evan, 2022. "Disrupted academic careers: The returns to time off after high school," Journal of Development Economics, Elsevier, vol. 156(C).
    10. Jorge Ivan Gonzalez & Mauricio Perez Salazar, 2019. "Mercados y Bienestar. Ensayos en memoria de homero cuevas," Books, Universidad Externado de Colombia, Facultad de Economía, number 79, August.

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    More about this item

    Keywords

    Education returns; Mincer Equation; Internal Rate of Return; Colombia;
    All these keywords.

    JEL classification:

    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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