THE RATE OF RETURN TO BECOMING A QUALIFIED SCIENTIST OR ENGINEER IN GREAT BRITAIN, 1966‐1976
| DOI | http://doi.org/10.1111/j.1467-9485.1980.tb00556.x |
| Published date | 01 February 1980 |
| Date | 01 February 1980 |
| Author | R. A. WILSON |
Scoffish
Journal
of
Political
Economy, Vol.
27,
No.
1,
February
1980
0
1980
Scottish
Economic Society
0036-9292/80/00240041
802.00
THE
RATE
OF
RETURN TO BECOMING
A
QUALIFIED SCIENTIST OR ENGINEER
IN GREAT BRITAIN,
1966-1976
R.
A.
WILSON*
Manpower Research Group,
University
of
Warwick
I
INTRODUCTION
In the
1960s
and early
1970s
various studies were published concerning the
private rate of return to undertaking
a
university degree in the United
Kingd0rn.l These studies addressed the general question of whether, from
the individual’s point of view,2 investment in higher education was worth-
while. Using age earnings’ profiles as proxies for an individual’s expected
lifetime income, they were able to show that the return to such investment
compared very favourably with alternative investments. All these studies
concentrated on obtaining an accurate snapshot of the situation prevailing
at
a
particular point in time. The objective of the present study, in contrast,
is to obtain
a
longer term perspective on the individual return to undertaking
investment in higher education, concentrating
on
the experience of those
qualified in Engineering, Technology and S~ience.~
Section
I1
begins with
a
brief review of the theoretical considerations in
computing rates of return. Previous work in the area is then considered in
section
111,
concentrating on the empirical results for the U.K., in order to
put the present paper in perspective. Section
IV
provides a discussion of the
objectives, methodology and data used in our own rate of return calculations.
Our results are described and discussed in section
V
and conclusions are
drawn in the final section.
*
I
am indebted to
D.
L.
Bosworth, my other colleagues at Warwick and an anonymous
referee for their comments on this paper.
I
would also like to express my thanks to persons
within government departments and the professional institutes who provided data without
which this paper could not have been completed.
For
example, Layard
et
ul.
(1971), Maglen and Layard (1970) and Ziderman
(1973).
Various studies carried out at this time (for example, Layard
ei
al.,
1970
also examined
rates of return from society’s viewpoint.
Our
concentration upon these particular disciplines is due to two factors. The first
is that the present study is part
of
a
larger piece of work examining the market for Scientists
and Technologists, and it was hoped that such a study would throw light on the market
signals that potential recruits
to
this labour market were receiving and hence provide
evidence about possible shortages of highly qualified scientific manpower. The second
reason is that due to data limitations it is not possible to carry out such a study for most
non-scientific highly qualified manpower.
Date of receipt of final manuscript:
23
April 1979.
41
42
R.
A.
WILSON
II
THEORETICAL
CONSIDERATIONS
IN
COMPUTING
RATES
OF
RETURN
The literature on human capital formation is immense and for general
reviews the reader is referred to Blaug (1965) or Psacharopolous
(1975).
The
part of the theory that concerns
us
here is the notion that someone who
remains at school and continues by taking
a
degree or qualification of equi-
valent standing can be regarded as investing in himself. The private rate of
return is the reward the individual receives for the sacrifice he makes,
in terms of costs incurred and income foregone, during the period
of
his
education.
In this paper we adopt the same methodology as used by Ziderman
(1973)
to
which the reader is referred for complete details. Average private rates of
return to an individual are computed assuming that age earnings profiles at
a
point in time can be used as
a
proxy for the expected profile of earnings
over his lifetime. Direct costs are assumed to be zero. We therefore con-
centrate almost entirely upon the financial rewards that the individual might
expect from investment in higher education. Psychic costs and benefits,
benefits of education as
a
consumer good (both while it is being undertaken
and through the individuals lifetime in the form of services from a consumer
durable) are ignored. Non-income benefits, payment in kind, differences in
the amount of time an individual will need
to
work to attain the incomes in
alternative profiles, benefits of alternative pension schemes, holidays etc.,
are also omitted. Furthermore we abstract from the question of whether
the observed rate
of
return reflects ability as well as investment in education
or the extent to which education is merely a screening device.
The objective of the current paper is not to provide definitive estimates of
the rate of return to becoming
a
scientist or technologist but rather to con-
centrate upon the question of how rates of return have changed over time.
Given that most of the above factors, while they may be important, are in
practice immeasurable we are in any case forced to ignore them. We therefore
accept with very little modification the methodology adopted
by
Ziderman
although also recognising the problems and limitations of such an approach.
We argue that these problems, although serious if one is primarily interested
in comparing rates
of
return between alternative investments at
a
point in
time, are less problematic if the objective is to compare rates of return for
the same type of investment over time. Any bias involved may affect the
absolute level of our estimates but not the profile over time. To the extent
that non-financial factors do not change in importance over time our measures
of the change in the financial rate of return to individuals over time will also
reflect changes in the true rate.
The comparison of rates of return over time introduces the question of
how inflation and expectations of further inflation should be taken into
account. The approach adopted here is to take the cross-sectional earnings
profiles at a point in time as representing the expected real costs and benefits
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