Heterogeneity of Social Returns to Education Across Employees Education Levels in Indonesia
Abstract
This study estimates the heterogeneity of agglomeration externalities across employees' education levels in Indonesia. This study uses the 2020-2024 microdata and the Instrumental Variable (IV) Heckman model with the historical population density and the number of universities as IVs. The result indicates that social returns to education from the local high-skill labor market, which is a part of agglomeration externalities, are positively significant and higher for high- and medium-skilled employees than for low-skilled employees. This finding demonstrates the efficacy of public education investments, especially Indonesian government policy that can enhance the quantity and quality of university graduates, thereby promoting the transfer of knowledge to all employees and eventually reducing wage inequality between regions.
References
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Groot, S. P. T., & de Groot, H. L. F. (2020). Estimating the Skill Bias in Agglomeration Externalities and Social Returns to Education: Evidence from Dutch Matched Worker-Firm Micro-Data. De Economist, 168(1), 53–78. https://doi.org/10.1007/s10645-019-09354-w
Groot, S. P. T., de Groot, H. L. F., & Smit, M. J. (2014). Regional Wage Differences in the Netherlands: Micro Evidence on Agglomeration Externalities. Journal of Regional Science, 54(3), 503–523. https://doi.org/10.1111/jors.12070
Isnaeni, N. F., & Khoirunurrofik, K. (2021). The Effect of Knowledge Spillovers and Human Capital through Technological Intensity on Employment Growth in Indonesia. Asia-Pacific Journal of Regional Science, 5(1), 21–39. https://doi.org/10.1007/s41685-020-00174-4
Joshi, R., Subramanian, C., & Swaminathan, S. (2019). Are There Social Returns to Education in Developing Countries? Evidence from Indonesia. Economic Development and Cultural Change, 67(2), 315–332. https://doi.org/10.1086/698165
Moretti, E. (2004). Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-sectional Data. Journal of Econometrics, 121(1–2), 175–212. https://doi.org/10.1016/j.jeconom.2003.10.015
Moretti, E. (2011). Local Labor Markets. In Handbook of Labor Economics, Volume 4b (pp. 1237–1313). Elsevier. https://doi.org/10.1016/S0169-7218(11)02412-9
Vassilakaki, E. (2016). Knowing your Users, Discovering your Library: An Overview of the Characteristics of User Generations. In Digital Information Strategies: from applications and content to libraries and people (pp. 215–224). Chandos Publishing.
Verstraten, P., Verweij, G., & Zwaneveld, P. J. (2019). Complexities in the Spatial Scope of Agglomeration Economies. Journal of Regional Science, 59(1), 29–55. https://doi.org/10.1111/jors.12391
Ciccone, A., & Hall, R. (1996). Productivity and the Density of Economic Activity. The American Economic Review, 86(1), 54–70.
Combes, P.-P., Duranton, G., & Gobillon, L. (2008). Spatial Wage Disparities: Sorting Matters! Journal of Urban Economics, 63(2), 723–742. https://doi.org/10.1016/j.jue.2007.04.004
Combes, P.-P., & Gobillon, L. (2015). The Empirics of Agglomeration Economies (pp. 247–348). https://doi.org/10.1016/B978-0-444-59517-1.00005-2
Cui, Y., & Martins, P. S. (2021). What Drives Social Returns to Education? A Meta-analysis. World Development, 148, 105651. https://doi.org/10.1016/j.worlddev.2021.105651
Dumauli, M. T. (2015). Estimate of the Private Return on Education in Indonesia: Evidence from Sibling Data. International Journal of Educational Development, 42, 14–24. https://doi.org/10.1016/j.ijedudev.2015.02.012
Edwards, B., & Storen, I. (2023). The World Bank and Education Governance in Indonesia: Influence around and beyond School-Based Management. In Rethinking World Bank influence: Governance reforms and the ritual aid dance in Indonesia. Routledge.
Fasbender, U., & Gerpott, F. H. (2022). Why Do or Don’t Older Employees Seek Knowledge from Younger Colleagues? A Relation–opportunity Model to Explain How Age‐inclusive Human Resources Practices Foster Older Employees’ Knowledge Seeking from Younger Colleagues. Applied Psychology, 71(4), 1385–1406. https://doi.org/10.1111/apps.12362
Graham, D. J., Melo, P. S., Jiwattanakulpaisarn, P., & Noland, R. B. (2010). Testing for Causality between Productivity and Agglomeration Economies. Journal of Regional Science, 50(5), 935–951. https://doi.org/10.1111/j.1467-9787.2010.00676.x
Groot, S. P. T., & de Groot, H. L. F. (2020). Estimating the Skill Bias in Agglomeration Externalities and Social Returns to Education: Evidence from Dutch Matched Worker-Firm Micro-Data. De Economist, 168(1), 53–78. https://doi.org/10.1007/s10645-019-09354-w
Groot, S. P. T., de Groot, H. L. F., & Smit, M. J. (2014). Regional Wage Differences in the Netherlands: Micro Evidence on Agglomeration Externalities. Journal of Regional Science, 54(3), 503–523. https://doi.org/10.1111/jors.12070
Isnaeni, N. F., & Khoirunurrofik, K. (2021). The Effect of Knowledge Spillovers and Human Capital through Technological Intensity on Employment Growth in Indonesia. Asia-Pacific Journal of Regional Science, 5(1), 21–39. https://doi.org/10.1007/s41685-020-00174-4
Joshi, R., Subramanian, C., & Swaminathan, S. (2019). Are There Social Returns to Education in Developing Countries? Evidence from Indonesia. Economic Development and Cultural Change, 67(2), 315–332. https://doi.org/10.1086/698165
Moretti, E. (2004). Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-sectional Data. Journal of Econometrics, 121(1–2), 175–212. https://doi.org/10.1016/j.jeconom.2003.10.015
Moretti, E. (2011). Local Labor Markets. In Handbook of Labor Economics, Volume 4b (pp. 1237–1313). Elsevier. https://doi.org/10.1016/S0169-7218(11)02412-9
Vassilakaki, E. (2016). Knowing your Users, Discovering your Library: An Overview of the Characteristics of User Generations. In Digital Information Strategies: from applications and content to libraries and people (pp. 215–224). Chandos Publishing.
Verstraten, P., Verweij, G., & Zwaneveld, P. J. (2019). Complexities in the Spatial Scope of Agglomeration Economies. Journal of Regional Science, 59(1), 29–55. https://doi.org/10.1111/jors.12391
Published
2025-11-06
How to Cite
WAHYUNI, Ribut Nurul Tri; RETNANINGSIH, Retnaningsih; YULIANA, Lia.
Heterogeneity of Social Returns to Education Across Employees Education Levels in Indonesia.
Eko-Regional: Jurnal Pembangunan Ekonomi Wilayah, [S.l.], v. 20, n. 2, p. 202-213, nov. 2025.
ISSN 2620-8849.
Available at: <https://jos.unsoed.ac.id/index.php/er/article/view/15782>. Date accessed: 14 dec. 2025.
doi: https://doi.org/10.32424/er.v20i2.15782.
Section
Articles
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