Average wage returns to innate abilities, higher education duration, and higher education quality in lithuania

This master thesis seeks to solve two problems – theoretical and practical one. The theoretical problem is related to which human capital theory can explain the case of Lithuania. The practical problem of the research is that in Lithuania there is a discrepancy between the human capital acquired during higher education and the demand of the labour market. The main task of the research is to answer the main question of the thesis: what can explain the return to the investment in human capital the most – innate abilities, higher education duration or the quality of higher education. In order to answer this question, the theory applied in the thesis is based on the model of the development of the human capital, which state that there are three interrelated things that can explain the return to human capital. The first part of the model is related to person’s innate abilities, that depend on nature and nurture. For example, innate abilities are related to genes, to socio-economic situation of parents, to quality of school, etc. In this study, the innate abilities variable is operationalised as the average entrance score of the field of study in higher education. This way the entrance score can represent the human capital that person accumulates in the early phases of life. The second part of the model is related to the quality of higher education. Research shows that there exists the return to higher education quality. In this research this higher education variable is operationalized as the average evaluation of the study field. Data of the average evaluations is based on Study Quality Assessment Center. The third part of the model is related to the duration of higher education. Human capital theories state that the time investment “today” in human capital will have a greater return in the following periods. This variable is operationalized as studies in university and college, controlling the signal that the higher education institution has in the public space. This study also examines the impact on the return on investment of whether a person is working in a high or low skilled occupation. Multiple linear regression models are used in the study. Main data used in this study are STRATA open data on average salaries of school graduates, STRATA open data on entrance scores of study fields, open data of the Study Quality Assessment Center on the evaluation of study programs, data of the magazine “Reitingai” that shows what signal higher education institutions have in the public space. The results of multiple linear regressions showed that when applying the human capital development model variables separately, they have a positive effect on the average income of graduates. However, in the general statistical model, which examines all the main variables of human capital development model, only the higher education duration variable is statistically significant and has a positive effect on the average salaries of graduates. When the proportion of graduates working in high or low-skilled occupations was included in the statistical models, the explanatory power of the models increased significantly. When the impact of the human capital development model on the proportion of graduates working in high or low-skilled occupations was analysed, it was found that the average entrance score, higher education study duration and the field of study have a statistically significant and positive effect on the proportion variables. Therefore, it can be said the high / low-skilled occupation is an intermediate variable, that is influenced by the average entrance score of the student, in which field of study he/she studies and for how long he/she chooses to study, and that it in itself influences the average income of graduates