The Dynamics of Returns to Education in Kenyan and Tanzanian Manufacturing*
| Author | Francis Teal,Godius Kahyarara,Anthony Wambugu,Måns Söderbom |
| Published date | 01 June 2006 |
| DOI | http://doi.org/10.1111/j.1468-0084.2006.00162.x |
| Date | 01 June 2006 |
The Dynamics of Returns to Education in
Kenyan and Tanzanian Manufacturing*
Ma
˚ns So
¨derbom,Francis Teal,Anthony Wambugu§
and Godius Kahyarara–
Centre for the Study of African Economies, Department of Economics, University of
Oxford, Oxford, UK (e-mail: mans.soderbom@economics.ox.ac.uk)
Centre for the Study of African Economies, Department of Economics, University of
Oxford, Oxford, UK
§Department of Economics, Kenyatta University, Nairobi, Kenya
–Economic and Social Research Foundation, Dar es Salaam, Tanzania
Abstract
We use micro data on manufacturing employees in Kenya and Tanzania
to estimate returns to education and investigate the shape of the earnings
function in the period 1993–2001. In Kenya, there have been long-run falls in
the returns to education while for Tanzania there is evidence of rising returns
in the 1990s. The earnings functions are convex for both countries and this
result is robust to endogeneity. Convexity may be part of the explanation as to
how rapid expansion of education in Africa has generated so little growth if
expansion has been concentrated at lower levels of education.
I. Introduction
Returns to education remain of central policy concern both in developed and
developing countries. In developed countries, observed rises in returns to
education have been imputed to skill-biased technical change (Katz and Autor,
*We are grateful to Jonathan Temple (Editor), two anonymous referees, Marcel Fafchamps, Geeta
Kingdon, Jim Malcomson, Janvier Nkurunziza, Margaret Stevens and participants at a CSAE
lunchtime seminar and a Labour Economics seminar at the Department of Economics, Oxford, for
several constructive comments on earlier versions of the paper. All errors are our own. The support of
the Economic and Social Research Council (UK) is gratefully acknowledged. The work is part of the
programme of the ESRC Global Poverty Research Group.
JEL Classification numbers: J31, O12, O14, O15.
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 68, 3 (2006) 0305-9049
261
ÓBlackwell Publishing Ltd, 2006. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA.
1999). In poorer countries such as those of sub-Saharan Africa (SSA), it has
been argued that returns may have been falling as a result of rapid expansion
of education. As educational supply grows without a commensurate rise in
demand, the probability of getting a job for any given level of education
declines and, among those with jobs, returns may fall.
1
The limited evidence
on how wage patterns have changed in Africa in the recent past suggests that
they have fallen, possibly substantially. Squire and Suthiwart-Narueput (1997)
document that real minimum wages halved in Kenya between 1970 and 1985,
and fell even more in Ghana and Zaire. However, it is known that in many
countries minimum wages are not enforced and the numbers are uninforma-
tive as to how the returns to education have been affected.
Policy interest focuses not only on the average returns to education but also
on the dispersion of returns across education levels. A prominent feature of
policy towards education in SSA has been the priority given to expanding
primary education (e.g. World Bank, 1995). Such an emphasis is seen as being
justified, in part, by the finding that returns to education are highest at lower
levels (Psacharopoulos, 1994; Psacharopoulos and Patrinos, 2002). The shape
of the earnings function is a key factor for understanding how policies of
education expansion will impact on incomes. If innovations in educational
policy impact primarily on those with high education costs, and the earnings
function is concave, then returns to such reforms will be relatively high.
However, the view that the earnings function is concave in education has
recently been challenged for both developed and developing countries.
2
If in
fact the earnings function is convex, so that the marginal returns to education
are lowest for the individuals with the least education, giving priority to
investment in primary education may have little impact on poverty unless the
individuals affected by the reforms proceed to higher levels of education.
3
1
Bennell (2002, p. 1186) has recently argued as follows: ‘During the 1960s and 1970s, obtaining a
‘‘good’’job in the rapidly expanding formal sector of the economy provided a powerful incentive for
households to invest in primary education (especially for boys). During the last 20 years, however,
wage employment opportunities have contracted sharply in many countries as have formal sector
incomes especially in the public sector’. An influential argument that educational expansion will be
self-defeating in that it will simply result in higher qualifications being needed for any given job can
be found in Dore (1976). The implications of his argument for Kenya and Tanzania in the 1990s can
be found in Toyoda (1997) and Cooksey and Riedmiller (1997).
2
In a series of papers, Bennell (1996a,b, 2002) has argued that the patterns of the returns to
education do not follow that asserted by Psacharopoulos (1994). Bennell’s underlying arguments are
consistent with the shape being convex. Direct evidence of convexity in some parts of the domain of
the earnings function is provided by Belzil and Hansen (2002) for the US and by Kingdon and Unni
(2001) and Duraisamy (2002) for India.
3
Throughout the paper, we consider the Mincerian returns to education which do not reflect the
private costs, other than foregone wages, or the possible non-wage benefits. It may be that the social
returns to primary education are high, e.g. in terms of health, but we are unable to investigate this
with our data. Furthermore, because primary schooling is a necessary input into postprimary, the
prospect of postprimary schooling may raise the primary return above the rate as conventionally
measured (Appleton, Hoddinott and Knight, 1996).
262 Bulletin
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