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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.

Suggested Citation

  • Neil Rankin & Justin Sandefur & Francis Teal, 2010. "Learning & Earning in Africa: Where are the Returns to Education High?," CSAE Working Paper Series 2010-02, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2010-02
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    References listed on IDEAS

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    1. Dale T. Mortensen, 2005. "Wage Dispersion: Why Are Similar Workers Paid Differently?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633191, April.
    2. 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. Sam Jones & Thomas Pave Sohnesen & Neda Trifkovic, 2023. "Educational expansion and shifting private returns to education: Evidence from Mozambique," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1407-1428, August.
    2. Birger Fredriksen & Ruth Kagia, 2013. "Attaining the 2050 Vision for Africa," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 5(3), pages 269-328, September.
    3. Sarah Bridges & Louise Fox & Alessio Gaggero & Trudy Owens, 2013. "Labour Market Entry and Earnings: Evidence from Tanzanian Retrospective Data," Discussion Papers 13/05, University of Nottingham, CREDIT.
    4. Issofou NJIFEN & Aicha PEMBOURA, 2020. "Hétérogénéité dans les rendements de l’éducation au Cameroun : une estimation en présence des biais de sélection et d’endogénéité," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 52, pages 105-126.
    5. Andrew Kerr, 2012. "A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market," CSAE Working Paper Series 2012-21, Centre for the Study of African Economies, University of Oxford.
    6. Vincent Leyaro & Priscilla Twumasi Baffour & Oliver Morrissey & Trudy Owens, 2014. "Determinants of Urban Labour Earnings in Tanzania, 2000/01-06," Discussion Papers 14/03, University of Nottingham, CREDIT.
    7. Hinh T. Dinh, 2017. "Jobs, Industrialization, and Globalization," Books & Reports, Policy Center for the New South, number 22.
    8. Dietrich, Stephan & Malerba, Daniele & Barrientos, Armando & Gassmann, Franziska & Mohnen, Pierre & Tirivayi, Nyasha & Kavuma, Susan & Matovu, Fred, 2017. "Social protection investments, human capital, and income growth: Simulating the returns to social cash transfers in Uganda," MERIT Working Papers 2017-029, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. 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.
    10. Stefano A. Caria & Paolo Falco, 2018. "Does the Risk of Poverty Reduce Happiness?," Economic Development and Cultural Change, University of Chicago Press, vol. 67(1), pages 1-28.
    11. Charles Godfred Ackah & Charles Adjasi & Festus Turkson & Adjoa Acquah, 2014. "Education, Skill, and Earnings: Further Evidence from Ghana," WIDER Working Paper Series wp-2014-073, World Institute for Development Economic Research (UNU-WIDER).
    12. Bairagya Indrajit, 2020. "Returns to education in self-employment in India: A comparison across different selection models," WIDER Working Paper Series wp2020-5, World Institute for Development Economic Research (UNU-WIDER).
    13. Jamelia Harris, 2019. "Occupational choice of skilled workers in the presence of a large development sector: Evidence from Sierra Leone," WIDER Working Paper Series wp-2019-101, World Institute for Development Economic Research (UNU-WIDER).
    14. Indrajit Bairagya, 2020. "Returns to education in self-employment in India: A comparison across different selection models," WIDER Working Paper Series wp-2020-5, World Institute for Development Economic Research (UNU-WIDER).
    15. Serneels, Pieter & Beegle, Kathleen & Dillon, Andrew, 2017. "Do returns to education depend on how and whom you ask?," Economics of Education Review, Elsevier, vol. 60(C), pages 5-19.
    16. Traoré, Jean Abel & Ouedraogo, Idrissa Mohamed, 2015. "Public policies promoting the informal economy: effects on incomes, employment and growth in Burkina Faso," MPRA Paper 74760, University Library of Munich, Germany.
    17. Priscilla Twumasi Baffour, 2013. "Determinants of Urban Worker Earnings in Ghana and Tanzania: The Role of Education," Discussion Papers 13/01, University of Nottingham, CREDIT.
    18. Oliver Morrissey & Susan Namirembe Kavuma & Richard Upward, 2015. "Private returns to education for wage-employees and the self-employed in Uganda," WIDER Working Paper Series 021, World Institute for Development Economic Research (UNU-WIDER).
    19. 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, vol. 20(suppl_3), pages -132, August.
    20. Susan Namirembe Kavuma & Oliver Morrissey & Richard Upward, 2015. "Private Returns to Education for Wage-employees and the Self-employed in Uganda," WIDER Working Paper Series wp-2015-021, World Institute for Development Economic Research (UNU-WIDER).
    21. Sandeep Mohapatra & Bruno Wichmann & Philippe Marcoul, 2018. "Removing The “Veil Of Ignorance”: Nonlinearities In Education Effects On Gender Wage Inequalities," Contemporary Economic Policy, Western Economic Association International, vol. 36(4), pages 644-666, October.
    22. Ms. Louise Fox, 2015. "Are African Households Heterogeneous Agents?: Stylized Facts on Patterns of Consumption, Employment, Income and Earnings for Macroeconomic Modelers," IMF Working Papers 2015/102, International Monetary Fund.
    23. Jonathan Lain, 2019. "Discrimination in a search and matching model with self-employment," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-35, December.
    24. Ackah, Charles & Adjasi, Charles & Turkson, Festus & Acquah, Adjoa, 2014. "Education, skill, and earnings: Further evidence from Ghana," WIDER Working Paper Series 073, World Institute for Development Economic Research (UNU-WIDER).

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