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What Explains Wage Differentials for Urban Wage Earners? : Returns to Education for Ethiopia’s UrbanWage Employed

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  • Nath,Shanjukta
  • Wieser,Christina

Abstract

The Ethiopian labor market is facing the dual challenge of creating new employment opportunitiesfor the rapidly expanding labor force and improving the quality of existing jobs in the labor market. This paperestimates an earnings function for the urban wage-employed to understand how investment in human capital shapes labormarket outcomes and to what extent human capital returns have been realized. The key findings show that there aresignificant gains associated with acquiring higher levels of education in the urban labor market. Interestingly, theanalysis also finds that the margin of completed primary compared to incomplete primary education is critical inexplaining earning gains. This finding has important implications for education policies in Ethiopia, a countryin which about 5 percent of gross domestic product is invested in education annually, with nearly half of thebudget earmarked for tertiary-level education. Understanding the returns from various levels of education, in differentsectors, regions, as well as gender gaps in earnings is critical for thinking about public investment choices andlabor market policies that can support nudging market inclusiveness, equity, and efficiency. Investments by thegovernment aimed at incentivizing completion of primary education can go a long way in ensuing higher wages andimproving standards of living in Ethiopia.

Suggested Citation

  • Nath,Shanjukta & Wieser,Christina, 2021. "What Explains Wage Differentials for Urban Wage Earners? : Returns to Education for Ethiopia’s UrbanWage Employed," Policy Research Working Paper Series 9879, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9879
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    References listed on IDEAS

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    1. Taye Mengistae, 1998. "Wage rates and job queues: does the public sector overpay in Ethiopia?," CSAE Working Paper Series 1998-20, Centre for the Study of African Economies, University of Oxford.
    2. Bigsten, Arne & Mengistae, Taye & Shimeles, Abebe, 2007. "Mobility and earnings in Ethiopia's urban labor markets, 1994-2004," Policy Research Working Paper Series 4168, The World Bank.
    3. Manudeep Bhuller & Magne Mogstad & Kjell G. Salvanes, 2017. "Life-Cycle Earnings, Education Premiums, and Internal Rates of Return," Journal of Labor Economics, University of Chicago Press, vol. 35(4), pages 993-1030.
    4. Simon Franklin, 2016. "Location, Search Costs and Youth Unemployment: Experimental Evidence from Transport Subsidies in Addis Ababa," SERC Discussion Papers 0199, Centre for Economic Performance, LSE.
    5. World Bank, 2017. "Ethiopia Employment and Jobs Study," World Bank Publications - Reports 32093, The World Bank Group.
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