Returns of education in the Czech Republic

Prepared for presentation at the Congress of the International Institute of Public Finance (IIPF) in Seville, Spain, 28-31 August 2000, for the session on the opportunity-equalising effects of fiscal systems. University education is nowadays provided as public goods in the Czech Republic. Due to economic pressure on public finance the trend of the 90s became the internalisation of costs associated with university education. The generally accepted hypothesis is that nowadays the returns from the costs of university education are achieved in a shorter time than before economic transition. Additionally, it is thought that the return on university education is differentiated by professions. We aim to test these hypotheses. That is why the cornerstone of our study is the deeper analysis of the differentiation of selected professions in the current state in comparison to the period before transition. After 1989, due to the economic transition and development of the market economy, wage differentiation accelerated in the Czech Republic. An important factor in differentiation seems to be the level of human capital, represented above all by university education. Education significantly increased the chance of finding a job, as another analysis has proven. However, these positive effects of education have been paid for by considerable monetary and non-monetary costs. The paper provides an economic analysis at the level of an individual and his point of return between costs and revenues from university education. To achieve an exact but still simple analysis we take into account only quantifiable monetary costs and revenues. The calculation of the point of return is done with the use of the construction of a cumulated whole-life income and its interpolation. The analysis uses data for the Czech Republic in 1988 and 1997.