Returns to education in heterogenous labour markets: The case of Peru

This paper examines the private returns to education in the context of heterogeneous labour markets, using Peru as a case study. While education is widely considered a key driver of individual earnings and economic growth, its actual returns may be constrained by structural features of labour demand. Drawing on nationally representative household survey data from 2016, 2019, and 2022, we estimate Mincerian earnings equations with Heckman selection correction to assess how returns to education vary by employment status (employee vs. own account) and sector (formal vs. informal). Our findings confirm significant positive returns to education overall, particularly at the tertiary level. We also find that while own-account and informal workers earn significantly less on average; returns to education vary by education level and sector. At the primary and secondary levels of education, returns are higher among informal and own-account workers, while at the post-secondary non-tertiary and tertiary levels, returns are higher in formal employment. Among own-account workers, returns at the tertiary level are comparable to those of salaried workers. These findings suggest that improving educational outcomes alone is not sufficient; targeted policies are also needed to expand formal, high-productivity employment, strengthen school-to-work transitions, and enhance the earning potential of workers in informal and own-account roles.