Returns to schooling in Ethiopia: The case of the formal Sector

The main objective of this study is to examine and estimate the returns to schooling in one state-owned enterprise i.e Edget Cotton Factory, and one private enterprise i.e MOENCO, both belonging to the formal sector in Ethiopia. The earning function was employed to estimate the returns to schooling using primary and secondary sources of information. The main findings of the study are: (a) human capital variables (education and experience), as estimated by the standard rate of retuns, are most important in influencing wages in the two enterprises; (b) the Mincerian rates of retum to primary, junior secondary, senior secondary, diploma-certificate, and above diploma levels in Edget Factory are 3.3% 5. 5% 2. 8% 18.3% and 11.3% respectively. The Mincerian regression coefficients, associated with primary education, although positive and significant, don’t conform with global patters observed by Psacharopoulos(1994) who estimated highest returns to primary education(c) a comparison of the wages of males and females in Edget Factory, showed that, for the same level of educational attainment, males had higher average wages than females. Women, though having more experience within the industry, had less experience outside of the industry and occupied lower-status jobs;(e) rates of retum estimated using comparative 1985 and 1996 data for Edget Factory reveal that women were paid less in 1996 compared to 1985 and 1996 compared to 1985 , suggesting that their situation in the factory has deteriorated over time. But, for both males and females, a one-year increase in education increased wages from about 9% in 1985 to about 56% in 1996.