Higher Education Externalities in Egyptian Labor Markets

Augmenting a Mincerian earnings function with governorate level data, this paper estimated the external return to higher education for individuals in Egypt in 2010. The results suggested that these externalities are negative and exist only for female workers, while for males these externalities were again negative but statistically insignificant. A unit increase in governorate average higher education is associated with a 68% decrease in females’ hourly wage. This could be explained by the fact that education degrees are simply used as a device to signal higher ability without raising productivity. Another reason could be excess supply of higher education graduates in the Egyptian labor market. These results have been tested through a number of robustness checks. Results survived to the introduction of individual and governorate level variables; it is not due to imperfect substitutability across workers; it still holds when treating local human capital as endogenous variable and instrumented it.