Self-Selection and Private Returns to Education in India: Evidence from NSSO Data

In this paper, we estimate the returns to general and technical education for regular and casual employment in India. We use the Employment and Unemployment Surveys of the National Sample Survey Office for the years 2004-2005 and 2011-2012. We find that education increases the likelihood of regular wage employment but decreases the likelihood of casual employment. Selection bias arises due to endogenous choice of sector of employment. This sample selection bias is addressed by using the Bourguignon-Fournier-Gurgand model while estimating wage equations. We find that the returns to education are substantially different for regular and casual workers. Regular workers experience positive returns to education across different educational levels but in case of casual workers marginal returns become negative at consecutive levels of education. The findings suggest that there is an incentive to acquire higher levels of education if the individual has a good chance of securing regular wage employment. Low or negative returns in case of casual employment can discourage investment in schooling and further exacerbate wage inequality. Therefore, expansion of education should go hand in hand with measures to promote widespread regular wage employment.