Capitalization of Education: Cross-Cohort Analysis
Опубликовано на портале: 31-12-2010
The introduction of a new set of reforms at the beginning of 1990s has triggered
a dramatic change in socioeconomic behavior for all social strata. The hard recession,
associated with the transformation, together with the ill-conceived social policy
were the general reason for an emerging number of specific problems related to human
capital. The shift in personal income distribution among the population was the logical
result of partial depreciation of some obsolete behavior patterns and skills, and
the spreading acknowledgment of those, demanded in a new market economy. In this
sense the observed human capital depreciation is associated with the fact, that its
core components, such as education and professional status, obtained before the transformation
period, could no longer guarantee individuals their former level of welfare. Furthermore
Russia was about to face extreme unemployment and the loss of wages, which were sooner
to become a serious threat for the most social groups.
Far from every group though could equally challenge the changing socioeconomic reality.
It is quite reasonable to suggest, that at the beginning of the transformation period
the preferences and behavior patterns of the more flexible young would more likely
match the new market conditions. They have a lot more chances to take an advantage
of the arising opportunities, rather than the older ones. A younger generation would
generally accept the reality as it is, and their choice of professional future would
bear no additional costs, associated with the depreciation of obsolete skills, requalification
and the painful process of adaptation to the changing environment, which would otherwise
burden more senior citizens. In other words, for the given research we suggest that
for the population, which happened to come into this world in the early 1970s and
later, it was easier to accustom to a new system of social and economic relations.
However the origin of the welfare differentiation was more commonly explained through
other factors rather than through the difference in educational status and age-specific
adaptation potentials. The ‘new old’ strategies of achieving a higher
level of socioeconomic status often included the use of the existing social bonds
and connections, access to nomenclature, etc., and the domination of those strategies
must have significantly affected the educational stimuli. But it is possibly another
delusion, because in the earlier 1990s Russia witnessed the boosting number of emerging
universities, institutions and colleges, most with a commercial status, which was
a direct response to the growth of the education market.
Therefore it is clear, that the problem of education as a welfare differentiating
factor deserves a better understanding today. A cross-cohort analysis, performed
on a modern representative sample data, allows us to conduct a deeper research of
the inner dynamics of the process, which is related to the shift in material incentives
of the human capital accumulation. Thus it is possible to measure the adaptation
consequence for different age groups and their welfare growth potentials, determined
by the amount and quality of possessed professional skills and education.
Eventually the objective of the current research is to test two of the following
general hypotheses: 1) professional experience and education have smaller effect
on older cohort’s welfare and relatively greater effect on younger cohort’s
welfare (because of the difference in adaptation costs during the transformation
period of 1990s), 2) formal education in modern Russia is not the only key factor
of the human capital, individual welfare will also be produced through possession
of modern skills.
Addressing the theory of human capital [Schultz 1971, Becker 1993, Mincer 1958] proved
very helpful in assessment of the existing capitalization potential of education.
The wide-spread practice of Mincer’s econometric model of wages (particularly
in Russia) determined its application in the current research and the corresponding
calculation of education investment returns (in this work equally regarded as its
capitalization opportunities). J. Mincer discovered the standard wages logarithm
function with the following independent values: individual investment in education,
professional track record, and job-specific experience. He interpreted their assessed
factors as the human investment returns, and that gives us a powerful instrument
for the estimation of their efficiency. However in order to receive a better idea
about the nature of relation between education and welfare of certain social groups,
the analysis was enhanced with additional variables, responsible for property values
of individuals and regarded apart from the regression model (viz. through correlation
analysis). Mincer’s equation was also enhanced with some ‘dummy’
variables, necessary to test the second hypothesis: the possession of second education
and modern skills, represented by the knowledge of at least one foreign language
and good computer skills (the general idea of such inclusion was extracted from Handel
The secondary research data is based on the results of the survey of 2414 economically
active Russians, conducted in November-December 2002 under the guidance of O. Shkaratan.
The primary survey mission was to collect the data, necessary for the research of
significant aspects of the post-Soviet transformation in Russia and the dynamics
of the emerging social and economic processes. The feedback form included 99 questions,
which particularly characterize every respondent and were logically structured into
several blocks, making it possible to reveal the dynamics of his cross-generational
and professional mobility, level of qualification and education, his living standards
and the quality of life. The functional advantage of this data can be proved by successful
survey results, achieved in the previous decades, and the experience of its organizers.
The original selection from the survey was reduced to 1845 respondents, who satisfy
the criteria of our research object. The new selection was thereafter split into
4 cohorts with a 10-year interval. The first cohort with respondents aged between
25 and 34 years old represents the Russians, most of whom graduated in 1992-2001.
This cohort is distinguished by the fact, that its respondents have completed their
education during and after the transformation period. The last and the ‘oldest’
cohort is a retiree group with people aged between 55 and 64 years old, who had to
adapt to the beggarly social security and to find additional sources of income. Thus
were obtained several conceptual objects for comparative cross-cohort analysis. It
must be mentioned, that the gender-caused distribution of factors was left beyond
the current research framework, and that could have slightly affected their estimation.
Though it did not interfere with the primary research objective, it became clear,
that it must be closely considered in further research.
In conclusion the following findings were unveiled:
1. Despite the highest percentage of university graduates and possession of modern
skills (foreign languages and computer knowledge), the ‘younger’ cohort
(25-34 years old) did not reflect a considerably higher correlation between educational
level and the level of welfare with the only exception of last cohort (55-64 years
old). Thus was discarded the first hypothesis, stating that the education is more
welfare differentiating among the young population, who bear no adaptation and requalification
2. Some measurable relation between the wages and educational level is observed in
the ‘older’ cohort (55-64 years old), but it was absolutely insignificant
in considering their property and possessions. But the fact, that the average income
level of this group is extremely low, justifies an exhausted capitalization of education..
3. Welfare distribution according to educational level proved most reasonable for
the middle categories of respondents (35-54 years old).
4. Econometric estimation of modern skills capitalization was also a successful experiment
(with the only exception of the last cohort), which brings some empirical proof for
the second hypothesis. But the growing returns of these factors for the older cohorts
additionally discards our first assumption.
5. At the opposite extremes of the final selection (the ‘younger’ and
the ‘older’ cohort) a significant sinking of incomes for the respondents
with basic vocational and vocational-technical education (PTU graduates) was observed.
Since nearly 10 years after the launch of radical transformation the national system
of education and labor market can still be regarded as ineffective. Instead of an
adequate response to the structural change it is continuing to lose its utility for
the agents and economy as a whole.
Foremost, based on the findings it was quite reasonable to put forward the following
suggestion, that there exists a number of unobserved factors which determine the
welfare of the young. While their influence is dominating, it threats the motivation
of the future generation and its human capital accumulation strategies. In the next
place, the depressing welfare of vocational school graduates poses another serious
problem and demonstrates the total lack of an adequate policy, which must be determined
in order to eliminate a number of obsolete industries and to execute the corresponding
reorientation of the existing schools to the current market demands.
In connection with the recent intentions of a future admission of Russia in Bologna
process, the outlined problems deserve a further profound research. The adaptation
of the international educational practices must therefore be brought into to the
full compliance with the transformation-specific socioeconomic reality of the country.
Otherwise it might become just another negative experience and cause a serious failure