Where Have All The Educated Workers Gone? Education and Structural Transformation in Three Asian Economies

Abstract

We study why the relationship between education and log-wages has become more convex in India, the Philippines and Thailand. To do so, we develop decompositions connecting returns to education, and shifts in those returns, to the evolving structure of employment. Returns to college depend mostly upon high-skill service jobs. While relative demand for college graduates in that sector generally rose, its employment share grew slowly, pushing workers with secondary education into less skill intensive services. Services employment, which grew fast, therefore became more menial on average. These polarizing trends in services account for the growing convexity of the Mincerian wage profile. The effects of industrialization on the returns to secondary education depend upon the composition of manufacturing employment. Slow structural transformation when educational attainment increases rapidly causes education inflation, and drives down the returns to secondary education. This constrains governments' seeking to use educational expansion to alter the wage distribution.