Evaluating the rate of return to education: problems, challenges and prospects

The main purpose of this paper is to evaluating the effects of some methodological problems and issues on the estimates of return rate of education to achieve accurate and reliable figures. After intensively and critically reviewing the empirical studies، opportunity cost، selectivity and endogeneity and the hierarchical structure of data have been recognized as critical problems and issues dominating the estimates، then their effects on return to education have been examined using data from the economic and social characteristics of household survey 2012 conducted by the Statistical Centre of Iran. The key findings are: 1. return to education for the head of households in Iran is positive but less than the estimates of some other countries; 2. the rate is higher for females as well as for employees in urban areas; 3. return to higher education is more than that for general education; 4. the estimates are very sensitive to the issues of opportunity cost، selectivity and endogeneity، and the hierarchical structure of data، so that ignoring these problems leads to underestimates of the return to education. Such problematic estimates then might be very misleading in resource allocation which would affect the development goals of a country. At the end، some specific topics for future research are also offered.