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Income expectation of freshmen and ex ante return on investment in Higher Education: evidence from British business schools and Czech School of Economics

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https://www.eduzhai.net/ EARNINGS EXPECTATIONS OF FIRST YEAR UNIVERSITY STUDENTS AND EX ANTE RATES OF RETURN TO INVESTMENT IN HIGHER EDUCATION: Evidence from English Business Schools and Czech Faculties of Economics JANA FISEROVA A thesis submitted to the University of Huddersfield in partial fulfilment of the requirements for the degree of Doctor of Philosophy January 2011 TABLE OF CONTENTS CHAPTER 1 ............................................................................................................................. 1 1.1 Introduction ......................................................................................................................... 1 1.2 Need for the study ............................................................................................................... 2 1.3 History of the research......................................................................................................... 3 1.4 Aims and objectives of the study......................................................................................... 4 1.5 Structure of the thesis .......................................................................................................... 4 CHAPTER 2 ............................................................................................................................. 6 2.1 Introduction ......................................................................................................................... 6 2.2 Tertiary education in England ............................................................................................. 7 2.2.1 The Dearing report: tuition fees and student loans .................................................... 7 2.2.2 Higher Education Act 2004......................................................................................... 8 2.2.3 Structure of tertiary education in England ................................................................. 9 2.2.4 Financing of higher education in England ............................................................... 10 2.3 Tertiary education in the Czech Republic ......................................................................... 14 2.3.1 Structure of tertiary education in the Czech Republic .............................................. 15 2.3.2 Financing of higher education in the Czech Republic .............................................. 18 2.4 Conclusions ....................................................................................................................... 25 CHAPTER 3 ........................................................................................................................... 27 3.1 Introduction ....................................................................................................................... 27 3.2 Age of human capital: development of human capital theory........................................... 28 3.2.1 Definition of human capital ...................................................................................... 32 3.3 Human capital theory and the law of supply and demand................................................. 33 3.4 Investment in human capital.............................................................................................. 35 3.4.1 Macroeconomic point of view ................................................................................... 38 3.4.2 Microeconomic point of view .................................................................................... 43 3.4.3 Micro vs. Macro - reconciliation .............................................................................. 48 3.5 Private returns to higher education.................................................................................... 50 3.5.1 Measuring returns to higher education..................................................................... 52 3.5.2 Expected earnings and rates of return to education ................................................. 59 3.5.3 Expectations formation ............................................................................................. 62 3.6 Finance theory and investment in human capital .............................................................. 65 3.7 Discussion and conclusions ............................................................................................... 69 3.8 Research hypotheses.......................................................................................................... 74 ii CHAPTER 4 ........................................................................................................................... 79 4.1 Introduction ....................................................................................................................... 79 4.2 Research process ............................................................................................................... 80 4.2.1 Research philosophy ................................................................................................. 81 4.2.2 Research approach.................................................................................................... 82 4.2.3 Type of study ............................................................................................................. 83 4.2.4 Research strategy ...................................................................................................... 84 4.2.5 Time horizon ............................................................................................................. 85 4.2.6 Methods of data collection ........................................................................................ 86 4.2.7 Justification for the methodology chosen.................................................................. 94 4.2.8 Sampling strategy...................................................................................................... 96 4.2.9 Reliability and validity ............................................................................................ 100 4.2.10 Research ethics........................................................................................................ 103 4.2.11 Data collection ........................................................................................................ 104 4.2.12 Limitations of the methodology ............................................................................... 105 4.2.13 Methods of data analysis......................................................................................... 106 4.3 Summary ......................................................................................................................... 108 CHAPTER 5 ......................................................................................................................... 110 5.1 Introduction ..................................................................................................................... 111 5.2 Descriptive analysis of aggregate data ............................................................................ 112 5.3 Descriptive analysis of the Czech data ............................................................................ 121 5.3.1 Prague ..................................................................................................................... 122 5.3.2 Liberec .................................................................................................................... 139 5.3.3 Pardubice ................................................................................................................ 154 5.4 Descriptive analysis of the English data.......................................................................... 171 5.4.1 Huddersfield ............................................................................................................ 171 5.5 Summary ......................................................................................................................... 187 5.6 Expected earnings and rates of return vs. level of education, experience and probability – Multifactor within-subjects ANOVA........................................................................................... 188 5.6.1 Expected earnings ................................................................................................... 189 5.6.2 Rates of return......................................................................................................... 197 5.6.3 Conclusions ............................................................................................................. 200 5.7 Gender and regional differences in the rates of return and earnings expectations – Multivariate analysis of variance ................................................................................................. 201 5.7.1 Expected rates of return .......................................................................................... 202 5.7.2 Expected earnings ................................................................................................... 208 5.7.3 Conclusions ............................................................................................................. 215 5.8 Gender and graduate destinations – Chi-squared test...................................................... 217 5.8.1 Huddersfield ............................................................................................................ 218 5.8.2 Prague ..................................................................................................................... 219 5.8.3 Liberec .................................................................................................................... 220 5.8.4 Pardubice ................................................................................................................ 222 5.8.5 Conclusions ............................................................................................................. 223 5.9 Expected earnings and rates of return vs. graduate destinations – One-way ANOVA ... 223 iii 5.9.1 Differences in expectations in Huddersfield by graduate destination .................... 224 5.9.2 Differences in expectations in Prague by graduate destination ............................. 226 5.9.3 Differences in expectations in Liberec by graduate destination ............................. 229 5.9.4 Differences in expectations in Pardubice by graduate destination......................... 232 5.9.5 Conclusions ............................................................................................................. 233 5.10 Risk and returns............................................................................................................... 234 5.10.1 Variance of expected earnings as a proxy of expected risk .................................... 234 5.10.2 Standard deviation of expected rates of return as a proxy of ex-ante risk.............. 238 5.11 Factors influencing expectations - multivariate multiple regression............................... 244 5.11.1 Conclusions ............................................................................................................. 259 CHAPTER 6 ......................................................................................................................... 262 6.1 Background...................................................................................................................... 262 6.2 Discussion of the results .................................................................................................. 263 6.3 Conclusions ..................................................................................................................... 271 CHAPTER 7 ......................................................................................................................... 273 7.1 Introduction ..................................................................................................................... 273 7.2 Summary of key findings ................................................................................................ 273 7.3 Contribution to knowledge .............................................................................................. 275 7.4 Policy implications .......................................................................................................... 276 7.5 Limitations of the study................................................................................................... 277 7.6 Proposals for further research.......................................................................................... 278 BIBLIOGRAPHY ................................................................................................................281 APPENDICES ......................................................................................................................309 iv LIST OF FIGURES Figure 2.1 Structure of the education system in England ..........................................................9 Figure 2.2 Structure of the education system in the Czech Republic .....................................18 Figure 2.3 Aims of the tertiary education reform in the Czech Republic................................22 Figure 3.1 Changes in supply of graduates in the labour market.............................................34 Figure 3.2 Impact of education at both micro and macro levels..............................................37 Figure 3.3 Wage premium as a result of the shift in demand for and supply of graduates ...43 Figure 3.4 Private and social optimum levels of schooling .....................................................46 Figure 3.5 Stylized age-earnings profiles ................................................................................53 Figure 3.6 Flat age-earnings profiles .......................................................................................57 Figure 3.7 Model of investment in higher education...............................................................76 Figure 4.1 Research process ....................................................................................................80 Figure 4.2 Deduction process ..................................................................................................83 Figure 4.3 Principles of questionnaire design..........................................................................88 Figure 4.4 Types of questionnaire ...........................................................................................89 Figure 4.5 Sampling methods ..................................................................................................97 Figure 4.6 Methods of data analysis ......................................................................................108 Figure 5.1 Average proportions of men and women in the samples and their respective populations ............................................................................................................................. 114 Figure 5.2 Age distribution by respondents‟ place of study ..................................................116 Figure 5.3 Parental level of education by respondents‟ place of study .................................116 Figure 5.4 Average parental income - quartiles.....................................................................118 v Figure 5.5 Gender distribution – Prague population and sample...........................................122 Figure 5.6 Expected graduate job destinations – Prague males.............................................123 Figure 5.7 Expected graduate job destinations – Prague females..........................................124 Figure 5.8 Graduate destinations: gender comparison – Prague sample ...............................125 Figure 5.9 Parental education – Prague sample .....................................................................126 Figure 5.10 Fathers‟ income distribution prior to 2008/2009 – Prague sample ....................128 Figure 5.11 Mothers‟ income distribution prior to 2008/2009 – Prague sample ..................129 Figure 5.12 Fathers‟ income distribution after 2008/2009 – Prague sample.........................129 Figure 5.13 Mothers‟ income distribution after 2008/2009 – Prague sample .......................130 Figure 5.14 Expected earnings immediately after university graduation – Prague sample...132 Figure 5.15 Averaged expected earnings across years – all levels and points in time – Prague sample ....................................................................................................................................133 Figure 5.16 Development in time of earnings expected at the point of graduation from high school – males, Prague sample ..............................................................................................135 Figure 5.17 Development in time of earnings expected at the point of graduation from high school – females, Prague sample ...........................................................................................135 Figure 5.18 Expected earnings‟ distribution at the point of graduation from high school and university – Prague sample ....................................................................................................136 Figure 5.19 Expected earnings‟ distribution ten years after graduation from high school and university – Prague sample ....................................................................................................136 Figure 5.20 Gender differences in expected rates of return – by situation, Prague sample...138 Figure 5.21 Gender differences in expected rates of return at graduation – by year, Prague sample ....................................................................................................................................138 Figure 5.22 Gender distribution – Liberec population and sample .......................................139 vi Figure 5.23 Expected graduate job destinations – Liberec males..........................................140 Figure 5.24 Expected graduate job destinations – Liberec females.......................................141 Figure 5.25 Graduate destinations: gender comparison – Liberec sample ............................142 Figure 5.26 Parental education – Liberec sample..................................................................143 Figure 5.28 Mothers‟ income distribution prior to 2008/2009 – Liberec sample..................145 Figure 5.27 income distribution prior to 2008/2009 – Liberec sample ....................................... Figure 5.29 Fathers‟ income distribution after 2008/2009 – Liberec sample........................146 Figure 5.30 Mothers‟ income distribution after 2008/2009 – Liberec sample ......................146 Figure 5.31 Expected earnings immediately after university graduation – Liberec sample..149 Figure 5.32 Averaged expected earnings across years – all levels and points in time – Liberec sample ....................................................................................................................................150 Figure 5.33 Development in time of earnings expectations immediately after graduation from high school – males, Liberec sample .....................................................................................151 Figure 5.34 Development in time of earnings expected at the point of graduation from high school – females, Liberec sample ..........................................................................................151 Figure 5.35 Expected earnings‟ distribution at the point of graduation from high school and university – Liberec ...............................................................................................................152 Figure 5.36 Expected earnings‟ distribution ten years after graduation from high school and university – Liberec ...............................................................................................................152 Figure 5.37 Gender differences in expected rates of return – by situation, Liberec sample .153 Figure 5.38 Gender differences in expected rates of return at graduation – by year, Liberec sample ....................................................................................................................................154 Figure 5.39 Gender distribution – Pardubice population and sample....................................155 Figure 5.40 Expected graduate job destinations – Pardubice males ......................................156 vii Figure 5.41 Expected graduate job destinations – Pardubice females...................................157 Figure 5.42 Graduate destinations: gender comparison – Pardubice sample ........................158 Figure 5.43 Parental education – Pardubice sample ..............................................................159 Figure 5.44 Fathers‟ income distribution prior to 2007/2008 – Pardubice sample ...............161 Figure 5.45 Mothers‟ income distribution prior to 2007/2008 – Pardubice sample..............161 Figure 5.46 Fathers‟ income distribution after 2007/2008 – Pardubice sample ....................162 Figure 5.47 Mothers‟ income distribution after 2007/2008 – Pardubice sample ..................162 Figure 5.48 Expected earnings immediately after university graduation – Pardubice sample ................................................................................................................................................ 165 Figure 5.49 Averaged expected earnings across years – all levels and points in time – Pardubice sample ...................................................................................................................166 Figure 5.50 Development in time of earnings expected at the point of graduation from high school – males, Pardubice sample .........................................................................................167 Figure 5.51 Development in time of earnings expected at the point of graduation from high school – females, Pardubice sample ......................................................................................168 Figure 5.52 Expected earnings‟ distribution at the point of graduation from high school and university – Pardubice sample ...............................................................................................169 Figure 5.53 Expected earnings‟ distribution ten years after graduation from high school and university – Pardubice sample ...............................................................................................169 Figure 5.54 Gender differences in expected rates of return – by situation, Pardubice sample ................................................................................................................................................ 170 Figure 5.55 Gender differences in expected rates of return at graduation – by year, Pardubice sample ....................................................................................................................................171 Figure 5.56 Gender distribution – Huddersfield population and sample...............................172 viii Figure 5.57 Expected graduate job destinations – Huddersfield males .................................173 Figure 5.58 Expected graduate job destinations – Huddersfield females ..............................173 Figure 5.59 Graduate destinations: gender comparison – Huddersfield sample ...................174 Figure 5.60 Parental education – Huddersfield sample .........................................................175 Figure 5.61 Fathers‟ income distribution before 2007/2008 – Huddersfield sample ............177 Figure 5.62 Mothers‟ income distribution before 2007/2008 – Huddersfield sample...........178 Figure 5.63 Fathers‟ income distribution after 2007/2008 – Huddersfield sample ...............178 Figure 5.64 Mothers‟ income distribution after 2007/2008 – Huddersfield sample..............179 Figure 5.65 Expected earnings immediately after university graduation – Huddersfield sample ....................................................................................................................................181 Figure 5.66 Averaged expected earnings across years – all levels and points in time – Huddersfield sample ..............................................................................................................182 Figure 5.67 Development in time of earnings expected at the point of graduation from high school – males, Huddersfield sample.....................................................................................183 Figure 5.68 Development in time of earnings expected at the point of graduation from high school – females, Huddersfield sample .................................................................................183 Figure 5.69 Expected earnings‟ distribution at the point of graduation from high school and university – Huddersfield sample ..........................................................................................184 Figure 5.70 Expected earnings‟ distribution ten years after graduation from high school and university – Huddersfield sample ..........................................................................................185 Figure 5.71 Gender differences in expected rates of return – by situation, Huddersfield sample ....................................................................................................................................186 Figure 5.72 Gender differences in expected rates of return at graduation – by year, Huddersfield sample ..............................................................................................................187 ix Figure 5.73 Estimated marginal means of expected earnings by education and experience .195 Figure 5.74 Quadratic model – convex curve........................................................................248 Figure 5.75 Quadratic equation curve....................................................................................249 x

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