204 Journal of Indonesian Economy and Business
May
1. Human Capital Model
Model 1 in Table 7 is a function of income based on human capital in which education is
represented as the years of schooling. The result shows that each additional year of education is
associated with an increase in wages of 8.48 percent for the wages per year. The experience
variable exp is a part of the control variable that provides an impact on an increase in income
by 3.72 percent for first additional year of experience. This model provides the value of
�
=
as being 28.3 percent.
2. Signaling Model
Model 2 in Table 7 is the signaling model, where education is represented as a set dummy
of the education level variable. Respondents who did not graduate from elementary school are
used as the basis of this dummy. The estimation result indicates that each school level has a
positive impact on income, and the higher the level of education obtained, the greater the
impact is. For example, for the model with annual income, the respondents who graduated
from elementary school have a 16 percent higher income than the respondents who did not
graduate from elementary school. Incomes for the graduates from junior high school are 39.2
percent higher than for who did not graduate from elementary school. The income of
graduates from senior high school is 70.8 percent higher than that of those who did not
graduate from elementary school. The income of graduates with diploma is 107.3 percent higher
than that of those who did not graduate from elementary school. Those graduates having
bachelor’s degrees and above have income that are 123.8 percent higher than those who did not
graduate from elementary school.
Model 2 has 0.5 percent of the value of �
=
, which is higher than in the first model. This
result indicates that both of the models have relatively equal strength. This shows that edu-
cation in Indonesia also improves productivity. It can also be used as a signal to employers to look
for the abilities of their prospective employees.
3. Hybrid Model
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