The paper estimates the rates of return to investmentin education in Egypt, allowing for multiple sources ofheterogeneity across individuals. The paper finds that, inthe period 1998–2006, returns to education increasedfor workers with higher education, but fell for workerswith intermediate education levels; the relative wageof illiterate workers also fell in the period. This changecan be explained by supply and demand factors. Onthe supply side, the number workers with intermediateeducation, as well as illiterate ones, outpaced the growthof other categories joining the labor force during thedecade. From the labor demand side, the Egyptianeconomy experienced a structural transformation bywhich sectors demanding higher-skilled labor, suchas financial intermediation and communications,gained importance to the detriment of agriculture andconstruction, which demand lower-skilled workers. InEgypt, individuals are sorted into different educationaltracks, creating the first source of heterogeneity: thosethat are sorted into the general secondary-university trackhave higher returns than those sorted into vocationaltraining. Second, the paper finds that large-firmworkers earn higher returns than small-firm workers.Third, females have larger returns to education. Femalegovernment workers earn similar wages as private sectorfemale workers, while male workers in the private sectorearn a premium of about 20 percent on average. Thiscould lead to higher female reservation wages, whichcould explain why female unemployment rates aresignificantly higher than male unemployment rates.Formal workers earn higher rates of return to educationthan those in the informal sector, which did not happena decade earlier. And finally, those individuals withaccess to technology (as proxied by personal computerownership) have higher returns.
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