Technical education and returns to schooling in Egypt (1998-2006)
Abstract
It has been recognized that technical and tertiary skills play a key role in the economic growth of the developed world. Yet, amongst developing countries, and Arab countries in particular, little progress has been made in this regard. Only a few East Asian countries have managed to make significant progress in catching-up with the developed world in terms of providing job-related skills and achieving higher quality education. This thesis uses newly available micro data on the Egyptian labor market to shed light on technical secondary education and its impact on returns to schooling. Technical education was criticized for its deteriorating quality and its inability to satisfy the skills needed for the labor market. As a result, this type of education is seen to lead to high unemployment rates and low wages among its graduates. This research analyzes the performance of technical education graduates in the labor market, by estimating the differences in returns (incremental wages) to general versus technical graduates across sectors and to what extent does it relate to labor market outcomes. The basic empirical framework in estimating the returns to education is the ‘Mincerian Human Capital’ wage determination model using Lee's method to correct for sample selection bias. The data used in this research is drawn from the 1998 Egypt Labor Market Survey (ELMS) and a newly dataset of Egypt Labor Market Panel Survey (ELMPS). This is used to estimate differences in returns across sectors by gender over the period 1998-2006. The results show that the massive expansion in vocational secondary and higher-technical institute enrolment had a continuing negative effect on their returns, because of the oversupply of graduates since the mid 1980s in Egypt. The results reach a dismal conclusion concerning vocational secondary education that does not provide its graduates with any value that would justify the private sector to be interested in hiring them. In particular, returns for female vocational secondary education are declining if not approaching zero over the period 1998-2006. Educational policy's greatest distortionary effect is observed for university graduates where they experience the highest unemployment rates and have the lowest rates of return to education in the government sector. There exists a decrease in returns to university graduates and a dramatic decrease for vocational secondary and higher-technical institute graduates over the period under study. The employment guarantee resulted in a bloated bureaucracy and overstaffing along with declining returns. Returns to Education 4 Thus, vocational graduates face mediocre prospects in the private sector whereas compensation policies offered by the government encouraged queuing to obtain a job. The government sector remains the favored employer for both male and female technical secondary graduates because they face barriers to private sector employment, particularly for women. Moreover, the private entrepreneur either creams the best technical secondary graduates or refuses to hire them as they are considered to belong to lower social economic class and there is a mismatch between their obsolete skills acquired at school and labor market needs. These results indicate that any recent reform of vocational secondary education in Egypt has so far failed to produce the desired labor market outcomes. The institutional setting in the labor market (public sector) has encouraged investment in obsolete human capital and entrapped it in unproductive employment in the government. As shown in empirical results, there is a significant misallocation of resources that spring from declining returns to education among middle to the upper-end of the educational distribution. The waste of human capital through the high unemployment rates particularly among university graduates in 2006 weakens the overall contribution of human capital to growth in Egypt. The results in this thesis can best be interpreted as giving credence to the view that technical education needs to be rationalized and improved, not simply thrust aside, in order for the country to capitalize on the benefits from its vast past investment in that area.