Global Poverty Research Group

The value of education in low skill economies: some evidence from Kenyan and Tanzanian Manufacturing

In depth

Questions, possible answers, and our approach

Questions posed by the project:

  • How have the returns to education been changing?
  • Have these changes resulted in changes in the shape of the earning function?
  • How have any changes differed over age groups?
  • Should you believe OLS results?
  • What are the results telling us about education policy?
  • In modelling the returns to education what are the key econometric issues that matter?

The question and (possible) answers

  • How have the returns to education been changing for skilled workers?
    • In the US (and possibly in the UK) they have risen at least over some of the period since the 1970s.
  • Two broad answers to that question:
    • Skill biased technical change
    • Trade effects of increasing globalisation
  • The answer that probably most economists would back is the skill biased technical change explanation.
    • Based on findings that measures of technology impinge on wages when we control for education and that the returns to education appear to have increased.

We are going to approach the problem from the perspective of low skill economies

  • There is a common argument that the returns to education are highest at lower levels ie the earnings function is concave.
  • Does this show up across countries ie those with lower levels of education have higher returns?
  • Does this show up within poor countries?
  • Is any skill effect on earnings symmetrical
  • ie in low skill low growth economies do we observe falls in the returns to education?

Why are Kenya and Tanzania interesting for these general questions?

  • Both are clearly low skill economies.
  • For both we have data from John Knight for the 1980s so we can look at long run effects.
  • For both we have data for repeated cross-sections for the 1990s for manufacture workers to assess whether there are any shifts over time when we know that there was no technical progress in these firms.
  • For both the sample contains a substantial proportion of low and high education workers.

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