General or Vocational? Evidence on School Choice, Returns, and Sheep Skin Effects from Egypt 1998

Transcription

1 Twenty-ffth Annual Meetng of The Mddle East Economc Assocaton (MEEA) Alled Socal Scence Assocatons Phladelpha, Pennsylvana January 7-9, 2005 General or Vocatonal? Evdence on School Choce, Returns, and Sheep Skn Effects from Egypt 998 By Fatma El-Hamd Unversty of Pttsburgh Unversty of Phoenx The author would lke to thank Ragu Assaad for nvaluable assstance. The author has also benefted from comments from Manos Antonns.

2 - Introducton There s no doubt the need for qualty techncans and a sklled workforce s crucal to sustanable ndustral development, and a key determnant of a country s nternatonal compettveness n a rapdly globalzng world economy. The compettve advantages of a country and ts potental for modernzaton are drectly related to the sze of accumulated human captal. People, wth ther educaton, sklls and experence, determne the opportuntes of economc growth. It s well documented n the lterature that whle tertary sklls are mportant for growth n developed countres, t s prmary and secondary educaton that are related to development n poorest and ntermedate developng countres. Recently, development agences have been promotng nvestment n basc and general educaton n the developng world, to ensure global labor market compettveness. One reason has been due to low rates of returns to vocatonal and techncal educaton. Another s the hgh cost of that type of educaton. A thrd reason has been a weak relatonshp between vocatonal school graduates and the need of the labor market. For example, the World Bank has been tryng to convnce governments n developng countres that, basc educaton should be ther top prorty and publc expendture on vocatonal educaton should be reduced drastcally (Bennell and Segerstrom, 998). The World Bank argues that vocatonal educaton and tranng n developng countres s best left to ndvduals, enterprses and prvate sector tranng nsttutons wth government nterventons kept to a mnmum. The debate on the relatve benefts of upper secondary vocatonal educaton and of general educaton s stll gong. Whle ths area of research has been very actve n the Unted States and ndustralzed countres n recent years, emprcal work n the Mddle East countres stll lackng. Ths study adds new evdence to that debate. The paper dentfes factors that nfluence an ndvdual s choce between vocatonal and general educaton n Egypt as well as the relatve returns between these them and beyond secondary levels. Usng an ordered logt model, the study fnds that an ndvdual from a well educated famly s more lkely to undertake general educaton. After correctng for self-selecton, the study also fnds vocatonal educaton to offer hgher returns (earnngs) than general secondary educaton does for men, but not for women. 2- Lterature Revew There are several approaches n researchng educaton. A number of studes use Mncer s human captal earnngs functon (HCEF). Ths model s also the most commonly employed method n labor economcs. In the human captal model, an ndvdual nvests tme and forgone earnngs n order to obtan hgher future benefts, the dscountng method s then used to calculate ndvdual (prvate) rate of return. The HCEF s a smple regresson model wth a lnear schoolng term and a low-order polynomal n potental experence (Card, 998). The methodology used n the human captal lterature s useful for analyzng the role of educaton n the labor market. However, Mncer s earnngs functon has been crtczed for not takng nto consderaton other mportant factors such as famly background that are not typcally avalable n wage data. Many of these factors are consdered n the educaton producton functon approach. A related model used to calculate educatonal attanment s the reduced form estmaton model. Studes mplementng reduced-form models typcally evaluate the 2

3 nfluence of famly and neghborhood characterstcs on returns to educaton. They set educatonal attanment as a dependent varable and a number of famly and neghborhood characterstcs as ndependent varables. Numerous studes fnd strong evdence that parental educaton has a sgnfcant effect on the chld s returns to educaton (Haveman et al, 99) and (Wlson, 200). Psacharopoulos showed that general secondary educaton offered hgher socal rates of return, largely because of the hgh unt cost of provdng vocatonal educaton (Psacharopoulos, 986, 987, 994). But a new wave of studes s stressng the fact that the returns to vocatonal educaton depend substantally on the general level of economc development, the avalablty of prvate sector jobs, and whether or not people are employed n a feld related to ther tranng (Bennell and Segerstrom, 998; Mddleton et al., 993; Neuman and Zderman, 990, 999). Others have shown substantal problems wth Psacharapoulos fndngs. Bennell for example, shows that the socal rates of return to vocatonal educaton are equal to or above those for general secondary educaton n a number of cases. He fnds the methodologes Psacharopoulos uses to calculate the returns are ncomparable, and that he excludes data from a number of studes that contradct hs conclusons (Bennell,996a, b). The lterature on the producton functon approach n researchng educaton vews varous school characterstcs, specfcally teacher salares, class sze, student/teacher rato, and expendtures per student, as nputs, and the educatonal attanments of ndvduals, specfcally test scores, years of educaton, and graduaton rates, as outputs. Such an approach concentrates on the educatonal process tself and the educatonal attanment of an ndvdual, (Wlson, 200), Hanushek (986), and Kremer (995). The major dfference between human captal model and producton functon approach s that the latter does not consder the ndvdual as a decson maker choosng hs/her level of schoolng. Instead, t evaluates dfferent factors that affect the ndvdual s educatonal attanment. Many studes nclude famly background nto the models estmatng returns to educaton. A number of research studes demonstrate that chldren who grow up n a lowncome famly typcally have lower educatonal achevements and, subsequently, lower returns to educaton than chldren who grow up n a wealthy famly (Haveman et al., 99). They also fnd that the mother s educaton usually has a postve effect on educatonal returns of a chld. Moreover, a vast research on returns to educaton suggests that addtonal years of schoolng ncrease the return to educaton. Accordng to Altonj (998), the wage level rses by 8 percent n response to each addtonal year of academc postsecondary educaton. In ther study on estmatng returns to educaton for a sample of twns, Ashenfelter and Krueger (994) fnd each year of schoolng ncreases wage rate by 2 6 percent. Even when they adjust for a measurement error, ther estmates are not less than 9 percent per year of school completed (Ashenfelter and Krueger,994). Another mportant varable often dscussed n the lterature s educatonal level. Years of educaton are mportant, but the fact that an ndvdual spent twelve years n school does not necessarly mean that he or she receved a hgh school dploma. For example, that person could have repeated one or more years. That s why t s mportant to study not only how years of educaton affect future earnngs, but also how the educatonal level that an ndvdual ultmately acheves affects hs/her wages. 3

4 Cosca (2000) confrms the fndng of many economsts that, n general, employees wth a bachelor s, master s, doctoral, or professonal degree have hgher average ncomes and lower unemployment rates than do employees wth less educaton. Hecker s (992) study was done n the early 990 s and has smlar results to those of Cosca. He proves that earnngs rse wth educaton level. Jaeger and Page (996) estmate the returns to schoolng and the sheepskn effect. The sheepskn effect reflects the dfference n earnngs due to the possesson of a degree. The reason s smply that a dploma serves as a sgnal of productvty n the labor market, thus ncreasng the ndvdual s potental earnngs. Jaeger and Page demonstrate strong evdence that dploma effects exst for all post-secondary degrees. An mportant test to ths fndng s to estmate the same model usng years of schoolng rather than educatonal dummes to fnd out f the labor market values degrees more than the equvalent years of schoolng. 3- Overvew of the Egyptan Educaton System The educaton system n Egypt s four-tered: Elementary; preparatory, secondary and hgh nsttutons and unversty. Elementary school (5 years), preparatory school (3 years) these are compulsory for all chldren ages 6-4. Upon completon of preparatory school and successfully passng the examnatons, chldren receve a basc educaton certfcate whch permts admsson to the secondary educaton level. Fgure (). Secondary educaton comprses of: A three-year general secondary educaton cycle, from whch successful students can go on to study at post-secondary level; and a vocatonal secondary educaton cycle. There are two dfferent types of courses at vocatonal secondary schools: - the three-year vocatonal secondary school leadng to qualfcaton as Techncan for the three man sectors: ndustry, agrculture and commerce; and 2- the fve-year advanced vocatonal/techncal secondary school leadng to qualfcaton as Frst Techncan. Table () shows enrollment n secondary and hgher educaton between 990 and 995. Table (): Enrollment, by Level and Type of Educaton, to (Thousands of students) Type of educaton (Percent Change) Prmary 6, , Secondary, , General Techncalvocatonal,026.2, Hgher Unverstes Source: Gll, et all (2000). Compare wth other countres. Vocatonal and techncal secondary degrees are consdered termnal degrees, whereas general secondary degree s vewed as a route to college. Vocatonal and techncal 4

5 nsttutons are normally not free to choose the most competent students. The decson s set by poltcans who decde that students who do not reach a partcular lmt n general educaton ought to go to vocatonal educaton. Ths n turn s reflected n lack of ablty and lack of motvaton snce they have faled the academc examnaton. One of the man characterstcs of the educaton system n Egypt s the long standng government responsblty to employ all graduates of tertary educaton graduates. Ths commtment extended n 963 to cover vocatonal and techncal educaton graduates. The polcy has mpacted the labor market well nto 990s. Durng the 970s, the Government of Egypt expanded vocatonal secondary educaton belevng ths should heal the urban youth unemployment problem. By early 980s, and throughout the 990s, ths dea showed up nto enrollng almost 70 percent of preparatory graduates nto vocatonal and techncal secondary educaton (commercal, ndustral, and agrcultural). The man objectve of ths polcy was to ease the pressure on unversty educaton, not to meet/match the demand on those sklls. Ths polcy resulted n deteroraton of qualty of both graduates and teachers due to low pay rates and outdated equpments. Fgure (): The Educaton System n Egypt Source: Natonal report presented to the 45th sesson of the Internatonal Conference on Educaton, Geneva, 30 September - 5 October 996. Antonns reports male urban unemployment rate n Egypt (ncludng dscouraged unemployment) n 997 s 0 percent, and 28 percent for women, compared to 8 percent and 38 percent respectvely n rural Egypt. 5

6 4- Methodology: The research on returns to educaton s based on the work by Mncer (974). In the tradtonal specfcaton, returns to educaton are estmated as follows: LnW = β0 + βedu + β2exp + β3exp2 + u () Where EDU s the number of years of schoolng, EXP s experence n years, EXP 2 s experence squared, and u s a random dsturbance term. The specfcaton s shown logarthmcally n order for the regressors to be nterpreted n terms of margnal effects. In ths way ndex β s nterpreted as the rate of returns to schoolng. Ths functon that has been ntroduced by Mncer (974) s known as the human captal earnngs functon. It has been the bass of practcally all research on returns to educaton. Grlches (977), however, ponted out that the coeffcent estmates of the OLS estmaton of the classcal model could suffer from what s now known as self-selecton bas. When ndvdual s famly background and ablty nfluence hs/her educatonal attanment, the ndvdual s sad to be self-selected nto that educatonal attanment. If educatonal attanment of an ndvdual s partally determned by hs/her abltes and famly backgrounds, estmatng the prevous classcal earnngs functon wthout takng nto account the possblty that famly background and ablty mght nfluence educatonal attanment, could gve based results. One approach to reduce the bas s to nclude control varables that mght capture part of the unobserved components n the error term. These controls should also enter n form of nteracton terms wth educaton to allow for heterogeneous slope coeffcents. The hgher the correlaton between the added varables and the unobserved components, the lower endogenety bas. Control varables such as famly background characterstcs: Father and mother level of educaton and father s occupaton. An nteracton term between educaton and famly background can capture the effect of famly background on returns to educaton. These results, however, are stll subject to another type of selecton bas. Bascally, the equaton has been estmated from data on workers, resultng n a censored sample of the entre populaton. When estmatng the wage equaton, only those who reported wages at the tme of the survey are entered nto the analyss, whle the ones who were not workng dd not report any wage. In order to solve the problem of sample selecton bas, Heckman (979) suggests estmatng two equatons. Frst the partcpaton equaton s estmated, consstng n estmatng through a logt, for the purpose of ths study, the probablty of havng worked at the tme of the survey, and out of school (usng the entre sample: workers and non-workers). From the logt results, a selecton varable (the nverse Mlls rato term) s created. Ths estmate s used n the second step, as an addtonal regressor n the wage equaton, yeldng consstent estmates of the coeffcents free of censorng bas. A recent extenson to ths model s to capture the so-called certfcaton effect or sheep skn effect. The dea s an employer mght value a worker wth a certfcate more than a worker wthout one. For ths reason, and to allow for estmated rate of return to vary by level of schoolng, dummes for levels of educaton are used nstead of years of schoolng. 6

7 The modfed Mnceran earnngs functon s: LnW = β 0 + β k E.Dum k + β 2 EXP + β 3 EXP2 + u (2) Where E.Dum conssts of dummes for levels of educaton. Years of experence are calculated by the followng formula: Age - Year of survey (that s 98) year at whch ndvdual entered the labor force. In ths specfcaton, the prvate rate of return to the k th level of educaton s estmated by the followng formula: r k = (β k - β k- )/ n k (3) where β k s the coeffcent of a specfc level of educaton, β k- s the coeffcent of the prevous level of educaton, and n s the dfference n years of schoolng between K and K-. (Psacharopoulos, 98). Ths procedure nvolves three assumptons:. Drect costs are ether mnor, or are compensated by a student s part-tme and/or summer earnngs. Ths assumpton s satsfed n the current analyss snce educaton s ether free or nvolves mnmal fees. 2. The opportunty cost of foregone earnngs s equal to the earnngs of the next lower level predcted by the model. 3. The earnngs profles are somorphc, that s, they are of the form y c f(x), where y c are the ntal earnngs of the educatonal category n queston and f(x) s a multplcatve experence functon common to all educatonal levels. It s expected to see the rate of returns to educatonal levels fall as the educatonal level gets hgher, snce the opportunty cost of educaton ncreases wth educatonal level. 4.- Frst Stage: Ordered Logt Model In ths study, I use the ordered logt model where educaton varable s ordered from zero to four, where 0= less than secondary; = general secondary; 2= vocatonal secondary; 3= hgher nsttutons; and 4= unversty and above. The model s: y * β + ε (4) = x * Where y s a latent varable that s a functon of a vector of explanatory varables. The standard logstc dstrbuton has a mean of 0 and ts densty functon s: F( ε ) = + e ε (5) The relaton between the unobserved latent varable and the outcome can be expressed as: 7

8 y = 0f y * µ, = f µ < y = 2f µ 2 < y... * = 4f µ y. 5 * * µ, 2 µ, 3 (6) These µ must satsfy the rule: µ 0 < µ < µ 2 < µ 3 < µ 4. Snce the dsturbance terms are logstcally dstrbuted, we obtan the followng probabltes: Pr Pr Pr Pr ( y = 0) = Pr( x β + ε µ ) ( y = ) = Pr( x β + ε µ ) Pr( + exp( xβ µ ) + ( y = 2) = Pr( x β + ε µ 2) Pr( = = + exp... ( x β µ ) ( y = 4) = Pr( µ 3 x β + ε ) = + exp 0 2 ( x ). β µ = + exp x β exp x β + exp 3 ( xβ µ 0 ) + ε µ ) 0 ( xβ µ 0 ) + ε µ ) ( x β µ ),,, (7) The estmaton of the unknown coeffcents β and thresholds µ can be estmated usng maxmum lkelhood method, where the above probabltes are the elements of the lkelhood functon. Explanatory varables that enter nto the ordered logt model nclude: educatonal dummes for the father and the mother as proxes for household socoeconomc status. It s assumed that hgher parental educatonal attanment to mply hgher socoeconomc status. Snce the mother s often the provder of the learnng envronment for her chldren, mother s educaton (rather than father s) mght have more sgnfcant mpact on the ndvdual s educaton decson, as dscussed n Behrman and Wolfe (984), Chswck (986) and Heckman and Hotz (986). Father s occupaton s another explanatory varable reflectng the status of the household. Regonal dfferences n choosng a certan level of educaton s captured by regonal dummes. Other explanatory varables nclude number of sblngs n the household. It s expected to fnd lower educated parents, and the presence of young sblngs n the household to be assocated wth choosng a vocatonal secondary educaton, snce ths s consdered a termnal degree after whch the graduate assumes an employment. 8

9 4.2- Second Stage: Earnngs Functon Estmatng the parameters n the frst stage allows calculatng the selecton term, to correct for selectvty bas, whch s then entered lnearly nto the wage equaton. The dependent varable n the wage equaton s the log hourly earnngs. Log hourly earnngs s used (nstead of hourly earnng) because t reduces the effects of earnngs outlers. The model therefore s: LnW = β 0 + β k E.Dum k + β 2 EXP + β 3 EXP 2 + β j Reg. Dum j + β 4 λ +u (8) Where E.Dum are dummes for levels of educaton, experence, experence squared, regonal dummes and the selecton term. Experence varables are ncluded n the model snce workers wth more years of job experence are lkely to earn more. (Hgher experence s often assocated wth hgher sklls and hgher productvty.) A frm s lkely to use hgher wages to nduce experenced workers to stay on n ther jobs, as the cost of tranng new workers could be very expensve. The experence squared varable s ncluded to capture the possblty of a non-lnear relatonshp between experence and earnngs. I expect a postve sgn of the experence varable for the reason that workng experence s lkely to contrbute to enhancement of ndvdual s human captal, and negatve coeffcent of experence square as margnal returns from experence tend to declne over the lfetme. Interacton of the effects of schoolng and experence on earnngs should not be neglected. A common reason s the fact that the frst few years n the labor market are tme for expermentng and frequent job change. As a consequence, earnngs of many ndvduals rse n ther frst years n the labor force, then level off and ncreases by a decreasng rate. Another ratonale s that the lfe-tme patterns of low level of educaton and hghly educated workers earnngs dffer by nature: for example, the margnal effects of experence on educaton for a worker wth a vocatonal educaton are lkely to ncrease durng the frst years of work and dmnsh afterwards. A unversty educated worker, on the contrary, faces ncreasng margnal returns to experence. Omsson of the nteracton varable, therefore, leads to the omtted varable bas n the coeffcents estmates. The coeffcents of educatonal varables are expected to be postve, and ther magntudes ncrease through post general school levels as follows (n ascendng order): general secondary, vocatonal secondary, hgher nsttutes, and unversty and above. That s I assume prvate earnngs ncrease the hgher the level of educaton. In theory, a man objectve of techncal/vocatonal educaton (among others) s to provde job-specfc tranng. Another desrable outcome of secondary vocatonal educaton s a possblty for a better match between sklls acqured n school and the ndustry, although emprcal evdence s ambguous. In case of a better match of vocatonal sklls, and because vocatonal degrees are termnals, I would expect the labor market would reward vocatonal sklls more than general educaton. 5- Data and Emprcal Methodology The emprcal analyss s based on a 998 natonally representatve household survey, Egyptan Labor Market Survey (ELMS). The survey ncludes rch data concernng basc demographcs, employment, unemployment, occupatonal hstory, mgraton, educaton, 9

10 earnngs, and parental background. The ELMS 998 was conducted on a sample of 5,000 households. The analyss s restrcted to urban 2, non-agrculture 3, prvate sector 4 workers, who are sons or daughters of the household heads between the ages of 5 and 64, and not currently enrolled n school. The sample on whch the analyss s based on conssts of 4843 urban prvate sector workers n 998. Table (A-) n the appendx dsplays means and standard devatons for varables used n the analyss. A summary statstcs by gender and level of educaton s n process. 5.- Ordered Logt Estmates: Tables (2) and (3) show the margnal effects of the explanatory varables on the probablty of choosng certan levels of educaton derved from an ordered logt model, for men and women. Snce all explanatory varables are dummes, the margnal effects show the effect of a dscrete change from zero to one. The reference ndvdual lves n Caro, wth llterate parents, and no sblngs. The Tables show regon does not affect men s decson to enroll n vocatonal educaton, whle t does for women. Vocatonal educated women are more lkely to resde n Caro than other urban ctes. Parent s educaton appears to have the expected effect. Mother s educaton for men s sgnfcant and ncreases n magntude the hgher the level of educaton. The hgher the level of mother s educaton (beyond lower secondary), the hgher the chance the ndvdual chooses hgh nsttute or unversty educaton. A mother wth secondary general educaton or post secondary degree ncreases the chance her son chooses a unversty educaton by 30 percent and 26 percent respectvely. For daughters, mother s educaton s sgnfcant n choosng any level of secondary or unversty educaton. The magntude of the effect s hgher n vocatonal educaton compared to other levels, but t gets hgher agan at the unversty level. Ths fndng s consstent wth Tunal s n Turkey (Tunal, 2003). The hgher the father s educaton the less lkely hs son chooses vocatonal educaton. For example, a unversty educated father reduces the chance of hs son choosng a vocatonal educaton by 8 percent, and a unversty educated father ncreases the chance of hs son to pursue unversty educaton by 6 percent. Father s educaton for women s also essental n choosng a secondary and above educaton. The pattern depcted n men s case appears here too. For fathers wth lower levels of educaton, daughters are lkely to choose vocatonal educaton, whle hgher levels of father s educaton ncrease the chances ther daughters choose unversty educaton. For example, women wth unversty educated fathers are on average 74 percent more lkely to opt for unversty educaton 5. The magntude of the effect of the presence of sblngs less than sx years of age s very small n all levels except n vocatonal educaton. The presence of sblngs less than sx years of age n the household, reduces the probablty of choosng a vocatonal 2 To avod the problems of labor market defnton assocated wth subsstence agrculture n rural areas. 3 Hgh rates of seasonal employment wthn the agrculture sector are justfcaton for excludng them from the analyss. 4 Snce labor earnngs for ths group are more lkely to be mmune from potental bases due to the noncompettve nature of the publc and government sectors. 5 Addng father s occupaton to the model produced nsgnfcant coeffcents for all occupaton dummes. 0

11 Table (2): Margnal Effects of Maxmum Lkelhood Ordered Logt Estmaton of School Choce for Urban Prvate Sector Men, Egypt 998 General Secondary Vocatonal Secondary Hgh Insttutes Unversty and Above Margnal Margnal Margnal Margnal Varables Effects Std. Err. Effects Std. Err. Effects Std. Err. Effects Std. Err. Regon (Caro=Reference) Alexandra &Suez Canal 0.00 (0.000) (0.08) -0.0 (0.006) -0.0 (0.00) Lower Urban Egypt 0.00 (0.000) (0.07) -0.0 (0.005) -0.0 (0.009) Upper Urban Egypt 0.00 (0.000) 0.00 (0.06) 0.00 (0.005) 0.00 (0.00) Mothers Educaton (Illlt=Ref.) Read and Wrte 0.00 (0.00) 0.06 (0.0) *** 0.03 (0.008) *** 0.06 (0.06) *** Prmary 0.0 (0.00) ** 0.07 (0.008) *** 0.05 (0.0) *** 0.0 (0.028) *** Lower Secondary 0.03 (0.002) ** 0.07 (0.00) *** 0.06 (0.06) *** 0.3 (0.050) *** General Secondary 0.0 (0.003) *** 0.00 (0.056) 0.09 (0.00) *** 0.30 (0.099) *** Vocatonal Seconday 0.02 (0.002) ** 0.07 (0.5) 0.06 (0.07) *** 0.5 (0.057) *** Unversty&above 0.0 (0.003) ** 0.02 (0.064) 0.08 (0.06) *** 0.26 (0.24) ** Fathers Educaton (Illt=Ref.) Read and Wrte -0.0 (0.000) 0.07 (0.02) *** 0.03 (0.006) *** 0.05 (0.02) *** Prmary 0.03 (0.00) *** 0.08 (0.008) *** 0.05 (0.00) *** 0. (0.024) *** Lower Secondary 0.0 (0.002) *** 0.06 (0.04) 0.07 (0.0) *** 0.8 (0.038) *** General Secondary 0.08 (0.002) *** 0.02 (0.027) 0.09 (0.00) *** 0.28 (0.05) *** Vocatonal Seconday 0.0 (0.002) *** -0.0 (0.036) 0.09 (0.009) *** 0.33 (0.062) *** Hgh Insttute 0.04 (0.003) *** (0.043) ** 0.08 (0.02) *** 0.46 (0.07) *** Unversty&above 0.06 (0.003) *** -0.8 (0.044) *** 0.05 (0.020) *** 0.6 (0.077) *** Sblngs (0.000) *** (0.06) ** -0.0 (0.005) ** (0.008) ** Sblngs > (0.00) (0.02) (0.0) (0.022) Source: Authors Calculatons

12 Table (3): Margnal Effects of Maxmum Lkelhood Ordered Logt Estmaton of School of Choce for Urban Prvate Sector Women, Egypt 998 General Secondary Vocatonal Secondary Hgh Insttutes Unversty and Above Margnal Margnal Margnal Margnal Varables Effects Std. Err. Effects Std. Err. Effects Std. Err. Effects Std. Err. Regon (Caro=Reference) Alexandra &Suez Canal 0.00 (0.00) ** (0.05) ** -0.0 (0.003) ** -0.0 (0.003) ** Lower Urban Egypt 0.00 (0.00) ** (0.05) ** -0.0 (0.003) ** -0.0 (0.003) ** Upper Urban Egypt 0.00 (0.00) *** (0.05) *** -0.0 (0.003) *** -0.0 (0.003) *** Mothers Educaton (Illlt=Ref.) Read and Wrte 0.02 (0.00) *** 0.2 (0.06) *** 0.03 (0.005) *** 0.04 (0.007) *** Prmary 0.04 (0.00) *** 0.7 (0.02) *** 0.05 (0.02) *** 0.07 (0.09) *** Lower Secondary 0.0 (0.00) *** 0.0 (0.042) ** 0.02 (0.03) * 0.03 (0.07) ** General Secondary 0.03 (0.003) *** 0.9 (0.0) *** 0.09 (0.022) *** 0.5 (0.048) *** Vocatonal Seconday 0.00 (0.003) *** 0.9 (0.0) *** 0.09 (0.02) *** 0.5 (0.048) ** Unversty&above 0.07 (0.006) *** 0.9 (0.030) *** 0. (0.038) ** 0.8 (0.07) * Fathers Educaton (Illt=Ref.) Read and Wrte 0.06 (0.00) *** 0. (0.04) *** 0.03 (0.004) *** 0.03 (0.005) *** Prmary 0.04 (0.00) *** 0.9 (0.05) *** 0.06 (0.00) *** 0.09 (0.06) *** Lower Secondary 0.04 (0.002) 0.20 (0.0) *** 0.09 (0.04) *** 0.5 (0.028) *** General Secondary 0.05 (0.002) 0.9 (0.04) *** 0. (0.03) *** 0.20 (0.032) *** Vocatonal Seconday 0.00 (0.002) 0.9 (0.06) *** 0. (0.07) *** 0.9 (0.045) *** Hgh Insttute 0.06 (0.002) *** 0.6 (0.024) *** 0.3 (0.04) *** 0.28 (0.046) *** Unversty&above (0.002) *** -0.0 (0.037) *** 0.07 (0.026) *** 0.74 (0.073) *** Sblngs (0.00) *** 0.6 (0.02) *** 0.0 (0.003) *** 0.0 (0.003) *** Sblngs > (0.002) (0.036) -0.0 (0.008) -0.0 (0.00) Source: Authors Calculatons 2

13 educaton by 0.04 percent for men, but ncreases the chances for women by 0.6 percent. A possble nterpretaton s that snce the vocatonal educaton s consdered a termnal degree, women wth young sblngs are expected to get a job rght after graduatng, to help ther famles fnancally. Parents, who send ther kds to vocatonal educaton, expect quck returns and less rsky nvestment. On the other hand, the presence of sblngs older than sx years old does not seem to have a sgnfcant effect on enrollng n any type of secondary or hgher educaton, for women, and men Returns to Educaton Estmates Table (4) dsplays selectvty corrected estmates of the returns equaton, wth nteracton terms, for men and women. The followng analyss apples to both men and women unless otherwse ndcated. Selecton term s nsgnfcant for men and women, ndcatng that sample selecton s not a problem. Experence has the expected profle. A postve sgn of the experence varable ndcates workng experence s lkely to contrbute to growth of ndvdual s human captal, and negatve coeffcent of experence square as margnal returns from experence tend to declne over the lfetme. Fgure (A-, n the Appendx) depcts earnng-experence profle for men and women. It s clear from the fgure the dfferences n men and women s profles. Women tend to have shorter lfe experence and steeper declne n ther profle than men. Back to Table (4), no dfferences appear n earnngs between the largest three urban ctes (Caro, Alexandra, and Suez Canal), but earnngs are lower n both upper and lower urban Egypt compared to Caro, wth upper urban havng a greater earnngs dfference than lower urban for men. Earnngs n lower urban Egypt are 6 percent lower than those n Caro, compared to 3 percent for upper urban Egypt. For women, the dfference n earnngs between upper or lower urban Egypt compared to Caro was lower by almost 3 percent n both regons. The coeffcents of the educaton dummes all have the expected postve sgn, and the majorty are sgnfcantly dfferent from zero at the percent level or more. These results may suggest that employers are affected by credentalsm n ther wage-settng. The educaton coeffcents n ths case, may be regarded as evdence of credentalsm, or screenng for ablty. These results do not match those obtaned by Assaad 6 (997)--usng 988 data--and Antonns (2002)--usng 997 data-- on Egypt. Both Assaad and Antonns found rates of return to vocatonal secondary schoolng and hgher nsttutes n the prvate sector are ether negatve or very low, for both men and women. The results also dsagree wth those found by Arabshenban (200) n Lbya. He found the returns to years of educaton do not strongly support sheepskn effect. The largest margnal return s at 8 years of educaton (not a dploma year). (Results of the nteractons between educaton dummes and famly background wll be avalable by the conference tme n December). 6 Assaad dfferentates between vocatonal blue collars, vocatonal whte collars, and techncal nsttutes n hs analyss 3

14 Table (4): Selectvty Corrected Wage Equaton for Men and Women, Egypt 998 Varables Men Women Experence 0.** 0.033** (0.03) (0.0) Experence Sq ** -0.00** (0.000) (0.000) Regon (Caro=Ref) Alex&Sz Cnl (0.032) (0.08) Lower Urban Egypt * * (0.03) (0.007) Upper Urban Egypt -0.32** * (0.03) (0.07) Educaton (Lwr Sec=Ref) General Sec * (0.68) (0.28) Vocatonal Sec 0.354** 0.307** (0.088) (0.063) Hgher Insttute 0.569** (0.62) (0.25) Unversty&Above 0.735** 0.490** (0.260) (0.080) Interactons GenSecXExp 0.063** 0.039** (0.04) (0.0) GenSecXExp2-0.00** -0.00** (0.000) (0.000) VocSecXExp (0.048) (0.023) VocSecXExp (0.00) (0.000) HInstXExp 0.073** 0.029* (0.05) (0.0) HInstXExp2-0.00** -0.00* (0.000) (0.000) Unv+XExp 0.065** 0.033* (0.023) (0.06) Unv+XExp2-0.00** -0.00* (0.000) (0.000) Selecton Term (0.023) (0.08) Constant ** (0.60) (0.24) Observatons R-squared Source: Author s calculatons Standard errors n parenthess. * sgnfcant at 5%; ** sgnfcant at %; + sgnfcant at 0%. 4

15 5.3- Prvate Rates of Return Tables (5) and (6) present prvate rates of return to educaton for men and women respectvely usng equaton 3 7. The tables do not support the hypothess that rates of returns are expected to declne the hgher the level of educaton, because of an ncreasng opportunty cost. Table (5) for example demonstrates returns to vocatonal secondary are 29 percent hgher than general secondary for men. Ths may support the fact that general secondary s not consdered a termnal degree. Although dd not dfferentate between vocatonal and secondary educaton, Antonns found secondary school graduates to earn more than less than secondary educaton, snce 95 percent of hs secondary educated workers were graduates of vocatonal schools, he dsmssed the noton that expanson of vocatonal educaton led to hgher unemployment and deteroratng qualty of educaton. Whereas Assaad (997) reported negatve returns to general and vocatonal (commercal) secondary educaton nvestment n the prvate sector n 988, whle the return to ndustral secondary educaton for males n the prvate sector was a sgnfcant two percent. Table (5): Prvate Rate of Return to Educaton for Men, Egypt 998 Educ. Level Coef. Educ. Level Coef. Rate of Return Vocatonal Sec Gen. Sec 0.06 ( )=0.293 Hgher Inst Voc Sec ( )/2=0.08 Unversty&Above Hgher Inst ( )/2=0.083 Unversty&above Voc Sec ( )/4=0.095 Unversty&above Gen. Sec 0.06 ( )/4=0.69 Source: Author s calculatons Table (6): Prvate Rate of Return to Educaton for Women, Egypt 998 Educ. Level Coef. Educ. Level Coef. Rate of Return Vocatonal Sec Gen. Sec ( )= Hgher Inst Voc Sec ( )/2= 0.03 Unversty&Above Hgher Inst ( )/2= Unversty&above Voc Sec ( )/4= Unversty&above Gen. Sec ( )/4= Source: Author s calculatons The Table dsplays returns to hgher nsttutes graduates are around percent hgher than vocatonal secondary graduates. Ths s n lne wth Kane who found the average person who attended a two-year college n the US earned about 0 percent more than those wthout any college educaton (Kane, 995). Emprcal evdence n ths matter stll mxed. Antonns (200), for example, found no evdence that gong to hgh nsttute n Egypt seems to add to earnngs sgnfcantly. He explans ths fndng by nteractons between supply sde (poor qualty of educaton) and demand sde (poor choce of 7 To nsure these rates of return are sgnfcant, tests of restrctons that the coeffcents of k th varables are equal to those of (k-) th were all sgnfcant at the 5% level or above. 5

16 graduates). Evdence from the US reveal Communty graduates earn 20 percent more than hgh school graduates, and those wth bachelors degrees earn 40 percent more (Casse, 998). The puzzlng result though s the returns to unversty educaton are only 0 percent hgher than that of vocatonal educaton, compared to 7 percent for general secondary. Further nvestgaton s pendng. For women, the dfferences n returns are smaller n magntude compared to men. For example, the dfference n rates of return to hgh nsttutes s only four percent hgher than that of vocatonal educaton. The returns to unversty educaton are merely sx percent hgher than that of hgher nsttutes. 6- Concludng Remarks: The purpose of ths study s two-fold: Frst, to determne factors that nfluence ndvdual s decson to choose a specfc level of educaton. Specfcally general secondary versus vocatonal secondary educaton. The second objectve s to estmate selectvty corrected returns to dfferent levels of educaton, that s sheep skn effects, from whch a crude estmate of the prvate rate of return s estmated. The analyss n ths study shows that chldren of parents wth lower levels of educaton are more lkely to get vocatonal educaton compared to chldren of parents wth hgher educaton. The presence of young sblngs n the household affects women by postvely nfluencng ther decson to jon vocatonal educaton. Whereas the effect on men s nsgnfcant. Evdence on Sheep skn effect, or credentalsm, for men s manfested n the sgnfcant rsng of postve schoolng coeffcents the hgher the level of educaton. Fnally, estmates of the prvate rate of return to educaton ndcate an ncrease of 29 percent n returns to vocatonal secondary educaton f compared to general secondary, and only 0 percent ncrease n returns for a hgh nsttuton or unversty degrees compared to vocatonal degree. Sheep skn s not as evdent for women. The current educatonal data, trend, and polcy n Egypt mply an oversupply of techncal and vocatonal sklls. Gll ponts out that even f techncally demandng ndustres operated effcently, the current system n Egypt could supply fve to seven tmes the requred number of sklled workers, accordng to conservatve estmates (Gll et all, 2000). One suggeston s for the government to develop a thrd form of secondary educaton whch combnes the best of general and vocatonal educaton, a model that draws on the nstructve/academc and structural approaches. Ths thrd way would provde vocatonal tranng that s applcable to a wder range of occupatons and s more responsve to local demand for labor. It s well acknowledged that the development of a hgh skll hgh partcpaton workforce s essental n order to acheve the levels of nternatonal compettveness that are now requred n a rapdly growng number of economc sectors. However, country experences show that ths type of labor force cannot be created voluntarly, or relyng on the prvate sector. Wthout actve labor market polces based on contnung government nterventon n fundng and provdng for hgh qualty vocatonal educaton and tranng, ths type of workforce s unlkely to develop n most countres. Because of the hgh captal nvestment needed for qualty vocatonal educaton, t cannot be left to be determned by market forces alone. Most prvate sector enttes have nether the vson 6

17 nor the capacty to provde the level of tranng that s needed to create an optmally skllful workforce. Further Research: Separatng three years of vocatonal educaton from fve years s the frst pressng test of the fndngs of ths paper, accompaned by a clear dstncton between the three dvsons of vocatonal educaton: commercal, ndustral, and agrculture. 7

18 Appendx Table (A-): Means and Standard Devatons of Varables Used n the Analyss Men Women Varables Mean Std. Dev. Mean Std. Dev. Log Real Hourly Wage Experence Regon Caro Alexandra &Suez Canal Lower Urban Egypt Upper Urban Egypt Level of Educaton General Secondary Vocatonal Secondary Hgh Insttute Unversty& above Household Characterstcs Sblngs Sblngs > Mothers Educaton Read and Wrte Prmary Lower Secondary General Secondary Vocatonal Secondary Unversty& above Fathers Educaton Read and Wrte Prmary Lower Secondary General Secondary Vocatonal Secondary Hgh Insttute Unversty& above No. of Observatons

19 Fgure (A-) Earnngs-Experence Profle for Men and Women, Egypt Log Real Hourly Wages.4.2 Men 0 Women Years of Experence 9

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