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Learning & Earning in Africa: Where are the Returns to Education High?

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  • Neil Rankin
  • Justin Sandefur
  • Francis Teal

Abstract

This paper investigates the role of learning - through formal schooling and time spent in the labor market - in explaining labor market outcomes of urban workers in Ghana and Tanzania. We investigate these issues using a new data set measuring incomes of both formal sector wage workers and the self-employed in the informal sector. In both countries we find significant, convex returns to education and large earnings differentials between sectors when we pool the data and do not control for selection. In Ghana there is a particularly steep age-earnings profile. We investigate how far a Harris-Todaro model of market segmentation or a Roy model of selection can explain the patterns observed in the data. We find highly significant differences across occupations and important effects from selection in both countries. The data is consistent with a pattern by which higher ability individuals queue for the high wage formal sector jobs such that the age earnings profile is convex for the self-employed in Ghana once we control for selection. The returns to education are far higher in the large firm sector than in others and in this sector they are linear not convex. In both countries there is clear evidence of convexity in the returns to education for the self-employed and here the average returns are low.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2010-02.

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Date of creation: 2010
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Handle: RePEc:csa:wpaper:2010-02

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  1. Schmertmann, Carl P., 1994. "Selectivity bias correction methods in polychotomous sample selection models," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 101-132.
  2. Justin Sandefur & Pieter Serneels, 2006. "African poverty through the lens of labor economics: Earnings & mobility in three countries," Economics Series Working Papers GPRG-WPS-060, University of Oxford, Department of Economics.
  3. Geeta Kingdon & Justin Sandefur & Francis Teal, 2006. "Labour Market Flexibility, Wages and Incomes in Subā€Saharan Africa in the 1990s," African Development Review, African Development Bank, vol. 18(3), pages 392-427.
  4. Jolliffe, Dean, 1998. "Skills, Schooling, and Household Income in Ghana," World Bank Economic Review, World Bank Group, vol. 12(1), pages 81-104, January.
  5. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
  6. Soderbom, Mans & Teal, Francis & Wambugu, Anthony, 2005. "Unobserved heterogeneity and the relation between earnings and firm size: evidence from two developing countries," Economics Letters, Elsevier, vol. 87(2), pages 153-159, May.
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Cited by:
  1. Abdoulaye Diagne & Bity Diene, 2011. "Estimating Returns to Higher Education: A Survey of Models, Methods and Empirical Evidence," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 20(suppl_3), pages -iii132, August.
  2. Stefano A. Caria & Paolo Falco, 2014. "Does the Risk of Poverty Reduce Happiness?," Development Working Papers 363, Centro Studi Luca d\'Agliano, University of Milano, revised 07 Apr 2014.
  3. Priscilla Twumasi Baffour, . "Determinants of Urban Worker Earnings in Ghana and Tanzania: The Role of Education," Discussion Papers 13/01, University of Nottingham, CREDIT.
  4. Ackah, Charles & Adjasi, Charles & Turkson, Festus & Acquah, Adjoa, 2014. "Education, skill, and earnings: Further evidence from Ghana," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Andrew Kerr, 2012. "A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market," Economics Series Working Papers WPS/2012-21, University of Oxford, Department of Economics.
  6. Sarah Bridges & Louise Fox & Alessio Gaggero & Trudy Owens, . "Labour Market Entry and Earnings: Evidence from Tanzanian Retrospective Data," Discussion Papers 13/05, University of Nottingham, CREDIT.
  7. Francis Teal, 2010. "Higher Education and Economic Development in Africa: a Review of Channels and Interactions," Economics Series Working Papers CSAE WPS/2010-25, University of Oxford, Department of Economics.

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