| Summary: | The paper estimates the rates of return to investment
in education in Egypt, allowing for multiple sources of
heterogeneity across individuals. The paper finds that, in
the period 1998–2006, returns to education increased
for workers with higher education, but fell for workers
with intermediate education levels; the relative wage
of illiterate workers also fell in the period. This change
can be explained by supply and demand factors. On
the supply side, the number workers with intermediate
education, as well as illiterate ones, outpaced the growth
of other categories joining the labor force during the
decade. From the labor demand side, the Egyptian
economy experienced a structural transformation by
which sectors demanding higher-skilled labor, such
as financial intermediation and communications,
gained importance to the detriment of agriculture and
construction, which demand lower-skilled workers. In
Egypt, individuals are sorted into different educational
tracks, creating the first source of heterogeneity: those
that are sorted into the general secondary-university track
have higher returns than those sorted into vocational
training. Second, the paper finds that large-firm
workers earn higher returns than small-firm workers.
Third, females have larger returns to education. Female
government workers earn similar wages as private sector
female workers, while male workers in the private sector
earn a premium of about 20 percent on average. This
could lead to higher female reservation wages, which
could explain why female unemployment rates are
significantly higher than male unemployment rates.
Formal workers earn higher rates of return to education
than those in the informal sector, which did not happen
a decade earlier. And finally, those individuals with
access to technology (as proxied by personal computer
ownership) have higher returns.
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