One of the key determinants of the demand for education is the rate of return to schooling compared to other investments. "This return to education may change because of a shift in the income for individuals who obtain more schooling or a shift in the income of those who do not. Also, a change in the economic costs of education can affect the return to education. (Barrow and Rouse, 2005, p.2)"
a. Discuss and compare the two methods used by economists to calculate private rates of return to education. Please present the analytical framework utilized by each method in addition to the differences between them.
b. State and explain at least four problems raised by experts about the standard methodologies used by economists to estimate rates of return to education.
c. There is recent evidence suggesting that rates of return to education have sharply increased in developing countries over the last twenty years. What could possibly explain these increases? Please provide four possible explanations and present any evidence available on them.