Declining returns to education worsen economic inequality in PHL

By Francis Allan L. Angelo

The value of a college education in the Philippines has significantly diminished over the past two decades, according to a new study from the Philippine Institute for Development Studies (PIDS).

Between 2005 and 2022, returns to education for salaried graduates saw a sharp decline, particularly for those with college degrees, sparking concerns about growing inequality and the quality of education in the country.

The report, authored by Jose Ramon G. Albert, Jan Carlo B. Punongbayan, and Mika S. Muñoz, highlighted that while access to education has expanded, especially with the introduction of the K to 12 reform in 2012 and the Free Tuition Law in 2018, the returns on education have not kept pace.

“The returns for college graduates dropped from 141.4 percent in 2010 to 93.7 percent in 2022,” the report noted, using data from the Labor Force Survey (LFS). This decrease, they say, reflects a growing mismatch between education and the job market.

The researchers found that from 2005 to 2022, the overall returns to college education fell by 33.7 percentage points for the full sample and 30.8 percentage points for young workers aged 25-34. This contrasts starkly with the 46 percentage point increase observed from 2001 to 2010.

The analysis revealed a concerning trend: while returns decreased across all education levels, the decline was most pronounced for college graduates in lower-wage brackets. For the 10th percentile of earners, returns to college education dropped by 64 percentage points, compared to just 18.2 percentage points for the 90th percentile.

This shift suggests that higher education may be exacerbating income inequality, as the benefits of a college degree increasingly favor those already at the upper end of the earnings distribution.

The study attributes these trends to several factors, including:

-Increased formal employment, which rose by 13.91 percentage points between 2005 and 2019.

-A significant shift from agriculture to service sector jobs.

-Improved wages for individuals with lower education levels, narrowing the wage gap with college graduates.

-Potential decline in education quality due to rapid expansion of access, particularly in higher education.

“The education system faced challenges such as inadequate resources, overcrowded classrooms, and a lack of qualified teachers,” the study noted, citing concerns about maintaining educational quality during the expansion period.

QUALITY AND INEQUITY

The report attributed part of the decline to the quality of jobs available. While more formal employment opportunities have been created, these are not necessarily high-paying, leading to stagnating wage growth for many, especially those in lower-wage jobs.

“Increased formal employment and a shift from agriculture to services have changed the landscape of job opportunities, but not necessarily in a way that benefits all graduates equally,” the report stated.

In fact, the authors revealed widening disparities in returns among college graduates. In 2005, low-wage workers saw greater benefits from a college degree.

By 2022, however, high-wage earners reaped more rewards from education, leading to a growing gap between the rich and poor.

“This is alarming because higher education is now providing more benefits to those already at the top of the income distribution,” the authors said.

IMPACT OF REFORMS

The study also explored the role of major policy changes, such as the K to 12 program and the Free Tuition Law.

While these policies aimed to increase access to education, the study suggested that they might have contributed to the decline in returns by increasing the supply of college graduates without corresponding improvements in job quality.

The authors pointed to inadequate resources, overcrowded classrooms, and a lack of qualified teachers as factors that may have degraded the quality of education, especially in public institutions.

COVID-19’S ROLE

The COVID-19 pandemic also played a part in the observed trends. The study noted that returns to education dipped further during the pandemic, with many graduates finding themselves underemployed or working in jobs that did not match their skills. “The pandemic exacerbated existing challenges in the labor market, with young graduates bearing the brunt of economic disruptions,” the study added.

RECOMMENDATIONS

The authors called for targeted interventions to address the declining returns and increasing inequality. They recommended that the Commission on Higher Education (CHED) prioritize monitoring and enforcing quality standards across the country’s higher educational institutions (HEIs). “Ensuring that graduates are equipped with the right skills and knowledge will be critical in improving employment prospects and wage growth,” they said.

The report also stressed the importance of aligning education with industry needs, urging HEIs to collaborate closely with businesses to develop relevant academic programs. The study further highlighted the need for economic policies that promote high-skill job creation, which would allow more graduates to find meaningful, well-paid employment.