Hong Kong Education: Efficiency and Equity

We use new estimates of private and social returns to investment in education in Hong Kong to address the efficiency and equity of the educational system with emphasis on tertiary education. According to the private returns, investment in education is highly profitable to the individual. The social returns far exceed any alternative discount rate. The size of private returns helps explain the demand for higher education. Comparison of social and private returns indicates a high level of public subsidization of higher education, contributing to the near world record of income inequality in the economy. Returns of workers in the competitive private sector of the economy are higher than those for workers in the public mirroring the productivity value of education. The higher education expansion of recent years has not been associated with an appreciable decline of the returns to education. We find no evidence for screening or overeducation, while education makes a significant contribution to economic growth.