Rates of Return to Education in Twenty Two Arab Countries: An Update and Comparison between MENA and the Rest of the World

Abstract

Using a unique dataset, the study fills an important empirical gap in discussions about labor outcomes in the Arab region by estimating the rates of return to education (RoRE) for all 22 Arab countries. Since we use the same global data set and empirical specification for all countries of the world, our estimates are comparable between countries and between regions of the world.  Compared to other regions, our results for the Arab region show that the RoRE are low but, in relative terms, those for Arab women are higher than those for Arab men. Similarly we find that the region has on average a zero public sector wage premium for men but a high one for women. The public sector premium is high for men in the GCC but low, even negative, in the rest of the region.  Still, the overall RoRE are lowest in the GCC.  The region’s RoRE are the result of higher than average returns to primary education and a very low ones to secondary and tertiary education. Noting the high prevalence of unemployment, especially among the more educated job seekers in the region, and that the RoRE are affected by both labor supply and labor demand, our results suggest that there should be more policy emphasis on the reasons behind the low labor demand, especially for higher skills, in the region.  This is particularly relevant for the private sector that is still characterized by rentier practices though it is tasked to create more employment in the future compared with the public sector.  Low labor demand depresses wages and reduces the incentive to invest in education unless there is an expectation for getting a job in the public sector or abroad.  In fact, the Arab region has one of the highest rates of skilled emigration in the world. This hurts not only short term prospects of Arab workers but also the long term welfare of citizens in the region.