The analysis of returns to investment in education is useful to assess the productivity of education in a particular labor
market. It also provides incentive for individuals to invest in their own human capital. The findings of these studies
may be used for overall policy guidelines as well as to design specific reforms or public interventions in the education
sector.
Based on human capital theory, the rate of return on investment in education implies that an increase in the
investment in education and payment of the related costs incurred in the current time is motivated by the potential
increase in the compensated benefits in productivity and earnings in the future. Thus, the theory of human capital
accumulation (Becker, 1975) suggests that the choice of educational attainment is based on the intersection of the
marginal rate of return and the marginal cost of education.
The conventional approach used to estimate the marginal rate of return to education is the standard Mincerian
earnings function, introduced by Jacob Mincer (1974). Despite many concerns regarding the estimation methodology,
potential biases and problems of measurement errors; Mincerian returns remain popular and have been widely used
in hundreds of papers which studied the issue of rate of returns to investment in education in different countries, for
different time periods, and with different estimation methods.