THE RATE OF RETURN TO INVESTMENT IN EDUCATION: A CASE STUDY OF POLYTECHNIC DIPLOMA GRADUATES

Please download to get full document.

View again

of 36
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Description
THE RATE OF RETURN TO INVESTMENT IN EDUCATION: A CASE STUDY OF POLYTECHNIC DIPLOMA GRADUATES by SAHARAWATI BINTI SHAHAR Thesis submitted in fulfillment of the requirements for the degree of Master of Arts
Transcript
THE RATE OF RETURN TO INVESTMENT IN EDUCATION: A CASE STUDY OF POLYTECHNIC DIPLOMA GRADUATES by SAHARAWATI BINTI SHAHAR Thesis submitted in fulfillment of the requirements for the degree of Master of Arts UNIVERSITI SAINS MALAYSIA MARCH 2008 ACKNOWLEDGEMENTS These sincere and heartfelt acknowledgements are meant for people who had contributed in many ways to the completion of the thesis. Firstly is to my husband Wan Sham Sani Hussain for his inspiration and encouragement as to further my study seriously. Dr Abdul Halim Ahmad, my advisor and the main contributor to see this thesis in its perfect condition. Not forgetting, Yang Berbahagia Professor Dato Jamalludin Sulaiman from School of Social Sciences for the in-depth discussion and review of the thesis. This dedication is also for the Associate Professor Dr Abdul Rashid Mohamed, the Dean of the School of Educational Studies who is also my second advisor. Not forgetting my former Principal, Pn Siti Maizon Abu Bakar from SMK Guar Perahu and the Associate Professor Dr Mohd Hashim Othman, my friends, neighbours and colleagues who had given their everlasting help and support. To my loving parents, siblings and my four charming children, there is nothing could compare the understanding moments and sacrifices given that I could say or write here. The foremost of all goes to Allah, who had given me my precious life that I have now and before and in silent admiration of Your Power to see my life lay continuously ahead under your broadest realm of Guidance forever. ii TABLE OF CONTENTS Page ACKNOWLEDGEMENTS TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF APPENDICES ABSTRAK ABSTRACT ii iii vii viii ix xi xii CHAPTER ONE : INTRODUCTION 1.0 Introduction Malaysia Education and Training System Problem Statement Significance of the Research Education and Training in Malaysia Rationale of the Research Education and Training in Malaysia: Critical Issues and 7 Problems 1.5 Research Objectives Research Questions Conceptual Framework The Design Model Framework of Analysis Limitations of the Study The Delimitations Definitions of Terminologies 24 CHAPTER TWO : LITERATURE REVIEW 2.0 Introduction Economics of Education Strategies for Investing in People Technical Education and Developmental Goals Human Capital Theoretical Path Education, Employment and Earnings 34 iii 2.5 Cost-Benefit Analysis (CBA) A Model of Human Capital Investment Age-Earnings Profile Historical Background of the Research (Returns to Education and Training) 44 CHAPTER THREE : RESEARCH METHODOLOGY 3.0 Introduction Research Approach Research Design Data Item Research Procedure Data Collection Procedures Methods Net Present Value and Its Decision Criteria Interest Rate versus Discount Rate Internal Rates of Return (IRR) and Its Decision Criteria Private Rates of Return Social Rates of Return Key Assumptions and Limitations Data Analysis 65 CHAPTER FOUR : RESEARCH FINDINGS 4.0 Introduction Statistical Descriptions of the Data Age Sex and Race Academic Achievement Schooling Category Certificate Level Profile NVTC and Level Profiles NVTC Certificate Level Diploma Field Diploma Institution Diploma Years of Schooling Vocational / Technical Background 73 iv Years of Working Experience First Job Age First Job Waiting Period First Job Basic Salary and First Job Gross Salary First Job Title Current Job Gross Salary and Current Job Net Salary Current Job Status Occupational Sector Age-Earnings Profiles for Diploma Graduates from 80 Polytechnic 4.2 The Costs of Education The Private Costs The Public Costs The Benefits of Education Calculation of the Rates and the Sources of Data Preliminary Analysis of the Data Main Findings - Rates of Return The Internal Rates of Return The Social Rates of Return (SRR) Outcomes The Social Rates of Return The Social Rates of Return at Diploma Level for Male 96 and Female The Social Rates of Return at Diploma Level for 96 Engineering The Social Rates of Return at Diploma Level for Public 97 Sector and Private Sector 4.7 The Private Rates of Return (PRR) Outcomes The Private Rates of Return The Private Rates of Return at Diploma Level for Male 102 and Female The Private Rates of Return at Diploma Level for 102 Engineering The Private Rates of Return at Diploma Level for Public 103 Sector and Private Sector 4.8 Conclusions 103 v CHAPTER FIVE : RESEARCH CONCLUSION AND DISCUSSION 5.0 Introduction Summary Results of the Study The Total Cost Study for Polytechnic Diploma Graduates The Amount of Benefits of Polytechnic Diploma 108 Graduates The NPV of Total Cost and Total Benefits of Polytechnic 109 Diploma Graduates The Rates of Return and the Discount Rates The Internal Rates of Return The Private Rates for Male and Female Graduates The Social Rates for Male and Female Graduates Private Rates and Social Rates of Return to Engineering 110 Graduates Private Rates of Return to Graduates Working in Public 111 and Private Sector Social Rates of Return to Graduates Working in Public 111 and Private Sector 5.3 Discussion on Preliminary Conclusions Discussion of the Study The Income Stream The Costs The Private Cost Falling Benefits versus Rising Costs Diminishing Rates of Return SRR versus PRR Choosing a Discount Rate Implications of the Study Implications on Prospective School Leavers Implications on Government: Policy-Makers and 124 Decision-Makers 5.7 Concluding Remarks Further Analysis Future Work 128 vi BIBLIOGRAPHY LIST OF TABLES 1.1 Federal Government Development Allocations to Education and Training Educational Attainment of the Labor Force, Employment by Sector, Occupational Structure, Employment by Selected Occupation, Output of Skilled and Semi-Skilled Human Resource by Course, The Design Model of the Conceptual Framework Return to Higher Education and Physical Capital in Selected Countries (percentage) Social Returns to Higher Education by Subject (percentage) Research Design and Procedures Calculation of Yearly Net Income Descriptive Statistics Age Profile Sex and Race Profiles Schooling Category, Academic Field and Certificate Level Profiles Frequency and Percentage of Respondents NVTC Certificate and Its Level Diploma Field of Study Profile Frequency and Percentage of Diploma Institution Diploma Years of Schooling Profile Vocational and/or Technical Background Profile Years of Working Experience and Age Profiles First Job Age Profile First Job Waiting Period Profile The First Job Basic and First Job Gross Salary Profiles First Job Salary and First Job Sector of Employment First Job Title Profile Current Job Salary and Current Job Sector of Employment 78 Page vii 4.17 Current Job Status Profile Occupational Sector Profile Age-Earnings Data Profiles Years of Working Experience-Earnings Frequencies 81 The Total Direct Private Cost per Polytechnic Student per Semester 4.22 The Total Direct Private Cost per Polytechnic Student per Year The Average Public Costs per Student Composition of Cost (3-Year Cost) 83 Private Monetary Costs and Benefits of a 3-Year Diploma Program 4.26 Cost-Benefit Stream of Polytechnic Diploma Graduates Social Rates of Return-Regression Analysis Summary Private Rates of Return-Regression Analysis Summary The Social Rates of Return Overall Findings of the Social Rates of Return The Private Rates of Return Overall Findings of the Private Rates of Return The Summary of Findings (At 5% Discount Rate) 104 LIST OF FIGURES Page 1.1 Age-Income Profile for High School and Diploma Graduates Cost-Benefit Analysis Framework Age-Earnings Profile for Male by Years of Education in 2001 (United States) Rates of Return from Successive Years of Schooling Supply of and Demand for Educated Labor 125 viii LIST OF APPENDICES Page Appendix 1 Education System of Malaysia 140 Appendix 2 Structure of Public Education in Malaysia 141 Appendix 3 Structure of Private Education in Malaysia 142 Appendix 4 Relevant Statistics on Technical and Vocational Education in Malaysia 143 Appendix 5 Students Enrolment at Diploma Level in Polytechnic Year Appendix 6 Students Output at Diploma Level in Polytechnic Year Appendix 7 Polytechnic Institutions 146 Appendix 8 Public Expenditure in Education and Tertiary Enrolment in Selected Countries (percentage) 148 Appendix 9 Profile of Labour Force, Appendix 10 Various Returns to Investment in Education 149 Appendix 11 Survey Questionnaires 150 Appendix 12 Set 5: Survey Set for Students Currently in Polytechnic 163 Appendix 13 Content Validity Test of Survey Questionnaires of Set Appendix 14 Data on Polytechnic s Students Private Cost 167 Appendix 15 Public Cost per Student 168 Appendix 16 Public Cost per Student per Year 169 Appendix 17 Earnings Calculation for High School Graduates (Public Sector) 170 Appendix 18 Earnings Calculation for Diploma Graduates (Public Sector) 171 Appendix 19 Income Tax Calculation for Diploma Graduates 172 Appendix 20 Income Tax Calculation for High School Graduates 178 Appendix 21 Social Rate of Return at Diploma Level (Male) 180 Appendix 22 Private Rate of Return at Diploma Level (Male) 181 Appendix 23 Social Rate of Return at Diploma Level (Female) 182 Appendix 24 Private Rate of Return at Diploma Level (Female) 183 Appendix 25 Social Rate of Return at Diploma Level (Engineering) 184 Appendix 26 Private Rate of Return at Diploma Level (Engineering) 185 Appendix 27 Social Rate of Return at Diploma Level (Public Sector) 186 Appendix 28 Private Rate of Return at Diploma Level (Public Sector) 187 ix Appendix 29 Social Rate of Return at Diploma Level (Private Sector) 188 Appendix 30 Private Rate of Return at Diploma Level (Private Sector) 189 Appendix 31 Various Formal Requests for and Grants from Various Government Departments/ Ministry 190 x KADAR PULANGAN PELABURAN DALAM PENDIDIKAN: SATU KAJIAN KES BAGI GRADUAN POLITEKNIK PERINGKAT DIPLOMA ABSTRAK Kajian ini bertujuan untuk mendapatkan kadar pulangan pelaburan dalam pendidikan dari aspek Teori Modal Insan. Objektif kajian ialah mengenalpasti jumlah kos dan jumlah keberuntungan yang terlibat dalam program pendidikan ini untuk pengiraan kadar pulangan pelaburan dalam pendidikan dari dua aspek; kadar pulangan pelaburan persendirian dan kadar pulangan pelaburan sosial. Dengan menjalankan Analisa Kos-Keberuntungan (Cost-Benefit Analysis) dengan menggunakan pendekatan Ingredients Method, Nilai Terbersih Semasa dicari dan seterusnya Kadar Pulangan Pelaburan diperoleh. Sampel kajian terdiri dari para graduan politeknik pada peringkat diploma dalam pengkhususan Kejuruteraan. Dengan mengaplikasikan teknik persampelan snowballing, seramai 292 responden telah berjaya diperoleh. Dapatan kajian mendapati bahawa kadar pulangan pelaburan pendidikan bagi graduan politeknik di peringkat diploma ialah 14.0 peratus bagi kadar pulangan persendirian manakala 13.0 peratus bagi kadar pulangan sosial. Manakala kadar pulangan bagi graduan politeknik yang bekerja di sektor swasta adalah 7 dan 8 peratus bagi kadar pulangan persendirian dan kadar pulangan sosial. Kadar pelaburan yang bagi graduan politeknik yang bekerja di sektor awam menunjukkan kadar pelaburan 5 dan 6 peratus bagi kadar pulangan persendirian dan kadar pulangan sosial. Kadar pelaburan bagi graduan politeknik perempuan menunjukkan kadar pulangan yang lebih baik berbanding dengan lelaki samada bagi kadar pulangan persendirian mahupun kadar pulangan sosial di antara 4 hingga 8 peratus. Secara amnya, berdasarkan dapatan kajian ini mendapati bahawa pelaburan pendidikan di politeknik pada peringkat diploma adalah memberangsangkan jika kadar pulangan persendirian ini dibandingkan dengan kadar faedah simpanan peribadi. Kesimpulan yang sama juga menunjukkan bahawa prospek pelaburan pendidikan di politeknik pada peringkat diploma masih memberangsangkan bagi tahun xi THE RATE OF RETURN TO INVESTMENT IN EDUCATION: A CASE STUDY OF POLYTECHNIC DIPLOMA GRADUATES ABSTRACT The research is to obtain for the rate of return to investment in education based on Human Capital Theory. The objective of this study is to estimate the total cost and the total benefit involved in polytechnic education system in order to count for the rate of return in two aspects; the private rate of return and the social rate of return to investment in education. By using the Cost-Benefit Analysis (CBA) streaming to the Ingredients Method, the Net Present Value (NPV) could be found and so is the Internal Rate of Return (IRR). The study samples are from the polytechnic diploma graduates majoring in engineering. By utilizing snowballing sampling technique, 292 respondents have successfully gathered. The findings showed that the rates of return to investment in education to polytechnic diploma graduates are 14.0 per cent for the private rates of return and 13.0 per cent for the social rates of return. Meanwhile, the rates of return for diploma polytechnic graduates who are working in the private sector are 7 and 8 per cent for the private rate and the social rate respectively. The rates of return for diploma graduates who are employed in the pulic sector showed that the rates are 5 and 6 per cent for the private rate and the social rate. The rates of return for female diploma polytechnic graduates are better than the male graduates either for the private or the social rate in between 4 to 8 per cent. Generally, the findings indicated that the investment in polytechnic diploma education is still viable and could be one of the favorable personal choices of investment. The findings proved that the return to investment in education for polytechnic diploma program is fairly attractive and socially profitable for xii CHAPTER 1 INTRODUCTION 1.0 Introduction It is common that development is directly associated with education. Developing nations believe that there is a positive correlation between development and education by relating development with economic growth and education with human resources. The economists believe that education and human resource development must be integrated in any strategy aimed at promoting economic development (Low & et. al., 1991; Mc Connell & et. al., 2006) and every country, without exception is committed to economic growth (Vaizey, 1967; Laitner, 2000). Most economists and educationists agree that the educational system has an important role in supplying human resource for economic growth. Harbison (1964) and Abdul Rahim & et. al. (2005) view that human resource development as a process of increasing knowledge, skills and capacities of people in society. In economic terms, it is the accumulation of human capital and its effective investment that contributed to the economic development. Generally, a nation s economic growth depends largely upon its productive labor market generated from its human resource factor which is produced by quality educational system. Most countries realize that quality educational system is an essential investment towards development through public budgetaries and development planning policies. In 2005 and 2006, Malaysia has spent 5.35 and 5.15 per cent of its Gross National Product (GNP) on education respectively (Ministry of Education, 2006). It is significant to note that the government development allocation for education and training has shown an increasing pattern over decades in Table 1.1 from the First Malaysia Plan until the Ninth Malaysia Plan ( ). It is visible that higher and secondary educations are among major concentrations in education development in the Plans. The revised allocation of RM45.2 billion accounts for 25.0 per cent of the 1 total development allocation of the Ninth Plan indicates the precedence given by the government in its effort to achieve a knowledge-based economy through human resource development. Lee (1983) states that education as a mean to upgrade society through present powerful and well-planned education. While, undertaking education is an investment where it incurs cost during the process rather than benefits that extends over lengthy future periods. These costs are expected for its larger potential return in the future (Mincer, 1962; Becker, 1958, 1964, 1966, 1975, 1993; Schultz, 1961, 1962, 1963, 1966). The decision to invest in human capital is assumed to be a function of the expected cost of education, the expected benefits of education, and the expected time frame of benefits that will be received. Thus, a fully informed rational individual will make the decision to invest in additional education when there is foreseeable rate of return. The increased earnings following investments in education are the fundamental components of analysis for human capital theory. The rate of return to schooling is a powerful tool of educational decision making since it calculates how much the return from the investment made. For example, individuals can compare the rate of return with the rate of interest to decide whether it is a good investment, and society can weigh the social rate of return with other possible uses of funds. The objective of the study is to provide new estimates of the private and social rate of return for polytechnic diploma graduates. Knowing the rate of return is valuable for several reasons. First, for an individual, information on the private rate of return is helpful in assessing whether it is efficient to opt for extra education. Second, for policymakers with scarce resources to allocate between competing policies, the social rate of return to education provides an instrument in determining the relative value in providing extra funds for education. Third, the process of calculating the rate of return itself can 2 provide important information on the main determinants of the return to investment in education. Program Table 1.1 Federal Government Development Allocations to Education and Training (RM Million) 1 1 st MP 2 nd MP 3 rd MP 4 th MP 5 th MP 6 th MP 7 th MP 8 th MP 9 th MP 2 Education , , , , , , ,356.5 Pre-School Primary Education Secondary Education Government & Governmentaided Schools Mara Junior Science Colleges Technical & Vocational Schools Higher Education Teacher Education Other Educational Support Programs , , , , na na na na na , , , , , , , , , , , , , , , , , , , , ,272.4 Training , , , ,792.6 Industrial 35.6 Training * * * , , ,103.6 Commercial Training * * * Management Training * * * TOTAL , , , , , , ,149.1 Note: 1 Based on the revised allocation. 2 Based on the original allocation. - Not available. * Due to not clearly categorised, the figure is taken as in its original total. Source: Various Mid-Term Malaysia s Plans from 1 st Malaysia Plan to 9 th Malaysia Plan. 1.1 Malaysia Education and Training System The Razak Report of 1956 and the Rahman Talib Report of 1960 had led to the very owned-malaysia school system which is currently in used (Appendix 1, 2 and 3). This evolution has forced the government or the public sector to borne the total cost of education. More recently, however, there has been a steady rise in private education, especially at the post-secondary and tertiary levels. 3 Generally, the curriculum is aimed to develop a trainable workforce with basic skills in spite of its objectives of nation building. It is designed to equip school-leavers with basic foundation in mathematics, communicative English proficiency, manipulative skills and science and technology which are also emphasized. The education system is guided by broader national objectives while skills training are primarily focused to meet immediate needs of the rapid changing economy. Nonetheless, the school curriculum is revised from time to time to keep pace with the changing national goals and aspirations of building a modern industrial economy. Present technical education and skills training are classified into three categories which are the public training institutions, private training institutions and other training institutions. Public training institutions are supervised by a few ministries such as the Ministry of Human Resources (MoHR), the Ministry of Higher Education (M
Advertisements
Related Documents
View more...
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks
SAVE OUR EARTH

We need your sign to support Project to invent "SMART AND CONTROLLABLE REFLECTIVE BALLOONS" to cover the Sun and Save Our Earth.

More details...

Sign Now!

We are very appreciated for your Prompt Action!

x