Changing rates of return to education over time: A Korean case study

Abstract

The accepted wisdom is that rates of return to lower levels of schooling are higher than to university and tend to stay higher even as a country develops. But increasing evidence suggests that there are many exceptions to this rule, especially during sustained periods of rapid industrialization. This paper examines changes in the rates of return in South Korea in the 1970s and 1980s. It shows that during this period the pay-off to lower levels of schooling fell substantially in absolute terms and relative to investing in completed 4-year college education, leaving college rates considerably above primary and secondary. The main restriction on students taking further education in such situations may therefore not be self-selection based on declining pay-off to further investment, but rather imposed selection, either through highly imperfect capital markets, or restriction on the number of places available in 4-year colleges. © 1993.