RATES OF RETURN: SOME FURTHER RESULTS*
| Date | 01 June 1983 |
| DOI | http://doi.org/10.1111/j.1467-9485.1983.tb01006.x |
| Published date | 01 June 1983 |
| Author | R. A. Wilson |
Scottish
lournolo/
Pnliricol
Economy,
Vol.
30.
No.
2.
June
1983
0
1983
Scottish
Economic
Society
RATES
OF
RETURN:
SOME FURTHER
RESULTS*
R.
A.
WILSON
Institute
for
Employment Research, University
of
Warwick
I
INTRODUCTION
The expected rate of return to undertaking certain career paths has been cited
as a prime influence on individual occupational decisions. It has also been
argued that the rate of return measure can be used as an indicator
of
how tight
a labour market is. In a perfectly competitive, risk-free world of complete
information, one would expect that rates of return would be equated by
market pressures in line with general interest rates. In practice the world is less
than perfect
;
individuals do not have complete information, nor do they have
free access to capital markets.
For
these reasons and because we can only
obtain a very crude measure
of
the true rate
of
return one would expect
observed rates to diverge from current interest rates. Nevertheless we would
argue that it is worth examining movements over time in observed rates
of
return as these will provide some guide as to whether markets are becoming
tighter
or
more slack. Furthermore they provide a guide as to whether further
investment in this type of human capital is worthwhile from both the
individual and social viewpoint. Such measures will of course reflect the
influence of both supply and demand on relative earnings.
An extensive review of previous studies on rates of return in the
U.K.
was
presented in Wilson (1980)
so
only a brief summary is necessary here. The
author’s main conclusion was that, allowing for differences in data samples,
methodology and assumptions, the average private rate of return to obtaining
a degree
or
equivalent qualification was fairly stable at around 14 per cent
from 1964/5 to 1966/7. The results also suggested that the return to
undertaking a degree in engineering
or
science declined substantially between
1967 and 1977.
Previous work had tended to concentrate upon aggregate groups (i.e. the
return
to
all first degrees) and on estimates at a single point in time. The
This research was carried out as part ofa program ofwork financed by the Manpower Services
Commission.
I
am indebted
to
D.
L.
Bosworth and my colleagues at Warwick
for
their comments.
I
would also like to express my thanks
to
various people within government departments and the
professional institutes who provide data without which this paper could not have been completed.
I
am especially grateful
to
A.
D.
Adamson
(DES)
for his assistance and advice. The usual
disclaimer applies.
Date
of
receipt of final typescript:
17
November
1982.
1
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