Does school pay off? How much?
Organisation: El Financiero (Costa Rica)
Publication Date: 04/08/2015
DescriptionObjective: This web app aims to inform citizens about returns to education (the relationship between the number of years of schooling and income earned in the job market) based on scientific methods and the most reliable data in Costa Rica, in order to incentivize their investment in human capital to prevent young people from dropping out of school. Web app description: The web app lets citizens find out the average monthly salary someone with their profile can receive in Costa Rica’s job market. The estimate is based on seven personal characteristics (years of schooling, age, labor market, labor branch, gender, location and weekly worked hours). Once the web app calculates the user’s salary, it lets her interact with each of the seven variables to understand how each one has a decreasing or increasing effect on her salary (i.e. years of schooling), holding all the other variables constant. Finally, the web app lets the user share her results with her friends in social media to invite others to use our tool. Main findings: Using our app, each citizen could reach to her own and specific conclusions, but our model supports the following trends: 1. Obtaining a secondary school degree can increase a person’s average salary by 45%, compared to just having a primary school degree, holding all other variables constant. The effect of this difference in school degrees even influences the consumption patterns of individuals. For instance, families with individuals with higher school degrees spend more on health and cultural activities than those lower school degrees. 2. In general, obtaining a graduate school degree could double your salary compared to the average salary perceived from having a college degree,holding all other variables constant. 3. Years of schooling explains around 20% of the differences in monthly salaries. It is the second most influential factor according to our research. The first one is the increase of worked hours. 4. Graduate degrees are 62% more profitable in public sector jobs than on private sector jobs holding all other variables constant. 5.Women earn salaries 28% lower than men, holding all other variables constant. 6. The average peak earnings age in Costa Rica is 46. When comparing the peak salary conditional on the educational degree, the biggest increase in income comes from moving from a secondary education degree to college (62% increase). Methods: We based our series of articles and web app, mainly, on a linear regression model frequently used and tested to study the returns to education by economists and statisticians.By analyzing the data based on this model, we can know which factors, and by what amount, explain the differences (variation) in the average gross salary of Costa Rican workers between 15 and 65 years old (excluding wages in kind). We wanted our readers to explore directly the potential of our analysis, so this intuition is reflected in the functional design of the web app: it lets our readers interact with seven variables, using their smartphones or desktops, to know how each can modify the average salary a person like the user receives in the labor market. The variables are the following: age (as a proxy for experience), residence (urban, rural), labor market (seven main markets), labor branch (17 branches), education level, weekly hours worked, and gender. Together, they can explain around 60% of the variation in salaries, which is a fairly good percentage according to scientific literature. Our database comes from the National Institute of Statistics and Census of Costa Rica.We used the best income and expenses survey available in our country (Encuesta Nacional de Ingresos y Gastos de los Hogares, 2013). It uses a sample of 5,968 subjects, which represents around 1.5 million workers. This survey uses a complex sample design (area design, two-stages, stratified and replicated). The questionnaires were applied each month between October 2012 and December 2013. Two important caveats: 1- Our model does not pretend to predict the future income of our readers, it only shows the behavior of salaries in the labor market in Costa Rica between October 2012 and September 2013. 2- Our model does not pretend to estimate the exact salary our readers perceive, it aims to calculate the average salary the labor market pays to workers that share similar characteristics with our readers. Some very technical specifications about our model: -The model is based on Gaussian regression model with an identity link, which, according to information criteria of Akaike and Bayes, it adjusts better to the survey design we used than a Gamma regression. -Since the income variable (dependent variable) is very asymmetric, we used the Box Cox transformation to correct the heteroskedasticity problem with a natural logarithm function to make the distribution more normal. -We applied a extreme values analysis (externally studentized residuals, hat values, Cook distances and others) to eliminate observations that atypically influence our estimations. -The final estimates of our model do not present multicollinearity problems according to the inflation factor of the variance. -All the variables used in our model were statistically significant according to the Wald and likelihood-ratio tests. -The model shows an adjusted sum of squares of the regression of 58.5%. -The standard error of the average salary estimate is low enough, so we do not show the confidence intervals.
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