The following table gives the highest levels of education among the adult popula
ID: 1128496 • Letter: T
Question
The following table gives the highest levels of education among the adult population in a country.
Years of Schooling
Percentage of People
No Schooling
0
0.4%
Partial Primary
4
0.8%
Complete Primary
8
1.9%
Incomplete Secondary
10
6.7%
Complete Secondary
12
36.2%
Incomplete Higher
14
22.4%
Complete Higher
16
31.6%
The return to education is given by:
First four years of schooling: 13.4% per year.
The next four years of schooling: 10.1% per year.
Subsequent years of schooling: 6.8% per year.
Calculate the fraction of total wages that represent the total return to human capital in the country.
Calculate the fraction of total wages that represent the total return paid to raw labor in the country.
Show your work.
Years of Schooling
Percentage of People
No Schooling
0
0.4%
Partial Primary
4
0.8%
Complete Primary
8
1.9%
Incomplete Secondary
10
6.7%
Complete Secondary
12
36.2%
Incomplete Higher
14
22.4%
Complete Higher
16
31.6%
Explanation / Answer
The wage for an individual with 16 years of education, relative to one with no education is
=(1.134)4 x (1.101)4 x (1.068)8 = 4.10
If the wage of an individual with no education is W, the wage paid to individual is 4.1W.
Payment to raw labour is W and payment to human capital is the difference between the total wage and wage for raw labor.
Payment to Human capital= 4.1-1/4.1= 75.6%
75.6% is the fraction of wages paid to human capital.
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