Declining Rates of Return to Education: Evidence for Indonesia

Abstract

In 1977, American labour economist Richard Freeman documented a fall in the return to education in the US, and attributed it to the expansion of the country's education sector. This article shows, similarly, that the returns to education in Indonesia generally declined between 1993 and 2007–08, following the large-scale expansion of the sector. The changes, however, were reasonably modest, and sometimes differed between males and females. This suggests that both recent growth in the education sector (which by itself could depress the return to education) and uneven growth across the Indonesian economy (which could differentially increase demand for graduates at various levels of education) have played a role in determining the pattern of change over time in the profitability of education in Indonesia.