Total and Private Rates of Return to Investment in Schooling

-y W9HE costs of schooling and the money returns resulting from investment in schooling are currently receiving more and more attention by economists, not only because of their possible implications for economic growth, but also because they may help individuals to determine how much they should invest in the development of their own human capital. This note provides some further evidence on these two topics; it presents estimates of internal rates of return based on both total and private resource costs for various amounts of schooling, from elementary school through college. The fragmentary treatment of both the costs of schooling and the money returns to schooling found in much of the recent literature provided the stimulus for preparing these internal rate-of-return estimates. For example, Miller calculates life-time income values by level of schooling,2 Houthakker estimates, on the basis of alternative discount rates, the present value of income streams associated with different levels of schooling,3 Schultz provides estimates of total resource costs of education by broad level of schooling,4 and Becker and Schultz calculate for several levels of education the expected rates of return, sometimes on a total resource cost basis and at other times on a private resource cost basis.5 Given this diversity of treatment, it is difficult to obtain an over-all picture of the relationship among rates of return to different amounts of schooling or to see the nature of the differences between the rates of return as viewed by society and those viewed by individuals. Moreover, the relationship among the various methods of contrasting the economic gains from education-the lifetime income, the present value, and the rate of return comparisons-has been obscured. It becomes important to understand what some of these relationships are when society and individuals allocate such a large portion of their resources to schooling. At the societal level, for example, we might be interested in determining whether to allocate more funds to reduce the number of dropouts from high school or to stimulate an increased flow