Return to Education and Work Experience in Bangladesh: An Instrumental Variable Quantile Regression Approach
Abstract:
This study examines the private returns to education and work experience in Bangladesh, with a focus on heterogeneity across the wage distribution, moving beyond conventional average-effect estimates to provide robust causal evidence relevant for human capital and inequality policies. Using nationally representative data from the Household Income and Expenditure Survey (HIES) 2016–2017, the analysis applies Ordinary Least Squares (OLS), Instrumental Variable Generalized Method of Moments (IV-GMM), Quantile Regression (QR), and Instrumental Variable Quantile Regression (IVQR) techniques to address endogeneity in schooling and to capture distributional effects, with parental education serving as an instrument for individual educational attainment. The results show that both education and work experience significantly increase earnings, while endogeneity-corrected estimates indicate higher returns to education than those obtained from OLS, confirming that mean-based models underestimate actual causal effects. IVQR estimates reveal pronounced heterogeneity, unlike the QR, with returns to education rising monotonically across the wage spectrum, suggesting that higher-wage earners benefit disproportionately, while work experience yields positive but diminishing returns. Substantial gender and rural–urban wage gaps persist, although women experience relatively higher marginal returns to education, particularly at the lower end of the wage distribution. Although the cross-sectional nature of the data limits the analysis of dynamic wage trajectories and the instrument may not capture all intergenerational channels, the findings provide credible and policy-relevant insights. By being among the first studies to apply an IVQR framework, this research offers updated and nuanced evidence on how education and experience shape wage inequality in a developing-country context.
Keywords: Returns to education; Work experience; Income equity; Generalized method of moments; Instrumental variable quantile regression; Human capital; Bangladesh.
This study examines the private returns to education and work experience in Bangladesh, with a focus on heterogeneity across the wage distribution, moving beyond conventional average-effect estimates to provide robust causal evidence relevant for human capital and inequality policies. Using nationally representative data from the Household Income and Expenditure Survey (HIES) 2016–2017, the analysis applies Ordinary Least Squares (OLS), Instrumental Variable Generalized Method of Moments (IV-GMM), Quantile Regression (QR), and Instrumental Variable Quantile Regression (IVQR) techniques to address endogeneity in schooling and to capture distributional effects, with parental education serving as an instrument for individual educational attainment. The results show that both education and work experience significantly increase earnings, while endogeneity-corrected estimates indicate higher returns to education than those obtained from OLS, confirming that mean-based models underestimate actual causal effects. IVQR estimates reveal pronounced heterogeneity, unlike the QR, with returns to education rising monotonically across the wage spectrum, suggesting that higher-wage earners benefit disproportionately, while work experience yields positive but diminishing returns. Substantial gender and rural–urban wage gaps persist, although women experience relatively higher marginal returns to education, particularly at the lower end of the wage distribution. Although the cross-sectional nature of the data limits the analysis of dynamic wage trajectories and the instrument may not capture all intergenerational channels, the findings provide credible and policy-relevant insights. By being among the first studies to apply an IVQR framework, this research offers updated and nuanced evidence on how education and experience shape wage inequality in a developing-country context.
Keywords: Returns to education; Work experience; Income equity; Generalized method of moments; Instrumental variable quantile regression; Human capital; Bangladesh.