Education and Earnings in Portugal 1 Pedro Telhado Pereira 2 Universidade da Madeira, CEPR and IZA Pedro Silva Martins 3 University of Warwick Abstract This reports presents evidence on the returns to education in Portugal. We find that, at 11%, Portugal exhibits a considerably large private economic return to schooling. This has been increasing since the early 1980s up until the mid-1990s but has decreased since then. Although the average return to education is large, the marginal return differs substantially as it generally increases with the schooling level. We find that Engineering is the best rewarded degree, while Human and Social Sciences (except Economics) reap the lowest returns. Some evidence suggests that holders of technical degrees have out-performed holders of similar degrees but of a more academic nature and that the private returns to some currently offered types of vocational schooling are very low. As to differences between gross and net returns to education, the latter are systematically lower. Wage dispersion is higher for workers of high schooling attainment levels. No evidence of signalling or selectivity in the returns to education is found. Our policy suggestions focus on the role of the schools’ governance structure upon students’ performance. While Portugal would certainly benefit from a more qualified workforce, the evidence suggesting low quality or inefficiency in the teaching/learning process should also be acknowledged. The efficiency and performance of the system may benefit from a gradual shift in the role of the government in education, from that of a provider and a producer to that of a provider and a regulator. 1 This report has been prepared for the Conference of the Bank of Portugal on “Desenvolvimento Económico Português no Espaço Europeu: Determinantes e Políticas”, to be held in 24-25 May 2002. The authors thank Mário Centeno, Reamonn Lydon, Robin Naylor, Ian Walker, participants in the European Commission “Public Funding and Private Returns to Education” research network and the Scientific Commission of the Conference for helpful discussions. They also gratefully acknowledge logistical support from the Bank of Portugal. All errors are of our own responsibility. 2 Departamento de Gestão e Economia, Universidade da Madeira, Campus Universitário da Penteada, 9000-390 Funchal, Portugal. Email: ppereira@uma.pt. Web: www.uma.pt/ppereira Fax: +351 291 705 040. Phone: +351 291 705 043. 3 Department of Economics, University of Warwick, Coventry CV4 7AL, UK. Email: p.martins@warwick.ac.uk. Web: www.warwick.ac.uk/staff/P.Martins Fax: +44 24 76523032. Phone: +44 24 76528240.