The Rate of Returns to Education: The Case of Indonesia

This research paper objective is to analyze the rate of returns to education in Indonesia using Mincer model. It describes the statistical relationship among market earnings, duration of education, experiences, and quadratic of experiences. In the analysis, we use primary data from the National Labor Force Survey (Sakernas) data in 2012. The National Labor Force Survey (NLFS) covers all provinces of Indonesia (33 provinces), 206.100 numbers of household, and 726.044 people of labor individual information. The analysis is conducted by seeing the effect of difference sex, regions, marital status, and industrial classification. The result indicates that there is an annual increase for 7,7868 percent in earnings due to an extra year of duration of education for individual worker. Moreover, the result indicates that the rate of returns to education for female is higher than male which is showed by increases for 8,96 percent and 7,3526 percent to the rate of returns to education for male and female respectively due to an additional year of schooling. Moreover, the rate of returns to education for urban areas is higher than rural areas. It is showed by an additional year of schooling is associated with an annual 8,5175 percent, and 6,3995 percent increases in salaries for urban and rural respectively. DKI Jakarta as urban areas and capital city of Indonesia give positive value to earnings. An extra year of schooling in DKI Jakarta increase 11,3734 percent returns to education for individual worker who work in DKI Jakarta. Meanwhile, married man and married woman also have higher the rate of returns to education compare to single man and single woman. The differences are 2,5544 percent and 3,5168 percent higher for married man and married woman. Furthermore, there are three main industrial sectors which have highest rate of returns to education. Those industrial sectors are industrial 2 (Mining and Quarrying), industrial 3 (Manufacturing Industry), and industrial 8 (Financing, Insurance, Real Estate, and Business Services). An extra year of schooling is associated with 10,31 percent, 9,98 percent, and 11,60 percent increase to the rate of returns to education for industrial 2, industrial 3, and industrial 8 respectively.