The returns to education : increasing with experience or decreasing with expansion

 whereas Flincer o b t a i n e d a s i g n i f i c a n t b u t n e g a t i v e c c e f f i c i e n t i n h i s e a r n i z g s f u n c t i o n , implying a n e g a t i v e r e l a t i o n f o r t h e U n i t e d S:ates. ' i n a s o p h i s t i c a t e d a n a l y s i s of 3 r i t i a h d a t a , P s a c h a r o p o u l o s and Layard found t h a t t h e i n c l u s i o n o f i n t e r a c t i o n terms produced c o e f f i c i e n t s t h a t were s e n s i t i v e t o precise specification. However, u s i n g t h e r e g r e s s i o n e q u a t i o n u n d e r l y i n g t h e i r b a s i c model ( e q u a t i o n 3 . 7 ) , it c a n be shown, f o r p l a u s i b l e r a n g e s o f e d u c a t i o n and employment exgerience, t h a t t h e i n t e r a c t i o n terms r a i s e e a r n i n g s a s e i t h e r e d u c a t i o n o r e m p l o ~ e n te x p e r i e n c e i s i n c r e a s e d . The i m p r e s s i o n w e g e t from t h e l i t e r a t u r e i s t h a t t h e e f f e c t of i n t e r a c t i o n S e t x e e n e d u c a t i o n and e x p e r i e n c e h a s n o t been s y s t e m a t i c a l l y examined. W e propose t o h e l p remedy t h i s d e f i c i e n c y by means o f a c a s e s t u d y i n a p a r t i c u l a r d e v e l o p i n g c o u n t r y , Tanzania. I n 1 9 7 1 one o f t h e a n t h o r s c o n d u c t e d a s u r v e y of some 1 , 0 0 0 m a n u f a c t u r i n g employees i n Dar e s Salaam. A f u l l a n a l y s i s of t h i s s u r v e y is t o be found e l s e w h e r e ; 3 l h e r e w e a r e concerned w i t h o n l y one a s p e c t of t h e e a r n i n g s function analysis. The r e l e v a n t c h a r ? , c t e r i st i c s o f t h e Tanzanian economy a r e a low a v e r a g e l e v e l of e d u c a t i o n among I employees, a r a p i d e x p a n s i o n of t h e ' e d u c a t i o n a l s y s t e m i n t h e y e a r s p r i o r t o t h e s u r v e y , and an i n f l e x i b l e l a b o u r market - - 9 i n which market f o r c e s a r e weakened a s a r e s u l t of v a r i o u s i - . 2. 4 1 . Mincer (19741, p ~ 92-3. . Psacl-.aroponlos and Layard ( 1 9 7 9 ) , p.493 and T a b l e 111. . 3 . X n i g h t and Sabot !1?30! .  Table 2 C o e f f i c l a n t s on Hducation and Znploynent Ex?&rfence i n S t r a t i f i e d Earnixgs Functicns ~ I 1 . . Equation : 5 5 8 Employment exper i ~ ~ ~ c e (years) : 0-3.9 4-7 -9 8-1119 ~ 12- I I Equation : 9 10 12 I- I Z2ucation ( y e a r s ) : 0 1-4 5-ai 9- Equation : C ' 30' 11)' li ' - Education : ( y e a r s ) : C o e f f i c i e n t on : - 0 -- 1-1- -.- .- . .0318*+ -0260 .068~5** .0626 3 Tt2 -.0005* .364 -.0003 .262 -.@014* -. .485 0012 -554 Notes: Other' independent v a r i a b l e s included i n t h regressio~s - a r e occupation, formal t r a i n i n g , migrant s and age. i 3 ii i s t h e ~ e a n e a r n i n g s , by employment e x p e d i e n c e g r o u p o r by e d u c a s i o n group, . i n s h i l r . i n g s p e r rnonqh.  e d u c a t i o n on e a r n i n g s d e c l i n e s a s enployment e x p e r i e n c e lengthens. t o edncztion To e x p l a i n t h e i n c r e a s i x g r e t - ~ r x s hx p e r i e n c e , a kuxan c a p i t a l . t 3 e o r i s t tlould 5ave t o a r y d e ~ i t e t h a t t h e p o s s e s s i o n of e d u c a t i o n i t s e l f f a c i 1 i : a t e s s k i l l a c q u i s i t i o n on-the-job, i . e . p r i o r e d u c a t i o n i s an i n p u t i n t o t h e p r o d u c t i o n f a n c t i o n of s k i l l formation. I t is a l s o i n t h e s p i r i t of t h e s c r e e n i n g h y p o t h e s i s t h a t t h e p a r t i a l e f f e c t of e d u c a t i o n on e a r n i n g s s h o u l d f a l l w i t h l e n g t h of employment e x p e r i e n c e . I f s c r e e n i n g by e d u c a t i o n e x p l a i n s t h e h i g h e r s t a r t i n g wages e a r n e d by t h e educated, t h e i n f l u e n c e of e d u c a t i o n on e a r n i n g s d e c l i n e s a s einployment e x p e r i e n c e l e n g t h e n s : a s employers g e t t o know t h e i r workers, t h e y can o b t a i n more d i r e c t e v i d e n c e on pro- d u c t i v i t y and neod no l o n g e r r e l y on e d u c a t i o n a l q u a ~ i f i c a t i o n s . T h i s tendency may n o t be s t r o n g because it is d i f f i c u l t f o r an employc?r t o d i s c o v e r t h e p r o d u c t i v i t y of one i n d i v i d u a l i n a compl. production process. Nevertheless, t h e i n t e r - 1 a c t i o n e f f e c t c a n be expected t o be n e g a t i v e . However, t h e human c a p i t a l e x p l a n a t i o n o f p o s i t i v e i n t e r - a c t i o n a l s o p r o v i d e s a proponent of s c r e e n i n g w i t h a c o u n t e r - r I * argument: p e r s o n a l a b i l i t y , r a t h e r t h a n e d u c a t i o n , i s t h e i n p u t i n t o t h e p r o d u c t i o n f u n c t i o n of s k i l l formation on-the- job. He might t h u s argue t h a t people a r e s c r e e n e d f o r a b i l i t y basis. Soms jobs i n v o l v e more t r a i n f n g on-the-job than o t h e r s ; t h e more e d u c a t e d , because t h e y a r e more t r a i n a b l s , a r e -- 1. Layarc? 2-12 ?sacharopoulos (1971) u s e d this precliction IS a l l o c a t e d t o jobs - - can a c q u i r e more human i n which they c a p i t a i thz?cqh ernploynent experience. I Whether t 5 e i n i t l a i c r i t e r i o n f o r a l l o c a t i o n t o jobs i s education a s a 2orn of huiian c a p i t a l o r a s a screbning d e v i c e , I t h e t h e o r y of i n t e r n a l labour markets c a n p r o v i d e an expla- n a t i o n of t h e subsequent i n c r e a s i n g importance 04 I elucation . J o b l a d d e r s and a s s o c i a t e d wage s c a l e s may be i n s k i t ~ t i o n a l l ~ determined i n such a way t h a t an i n d i v i d u a l ' s p o i n t of e n t r y I determines n o t o n l - - wase buk y his relative startinq I a l s o how high and how f a s t he can c l i r b . ' To 7a r y t h e aetlaphor , people I with e d u c a t i o n a r e s e l e c t e d f o r e s c a l a t o r s t h a t rlise r a p i d l y l and o t h e r s f o r e s c a l a t o r s i !??tr i s e slowly: i t f d l l o w s t h a t earnings d i f f e r e n t i a l s wi, . grow with  i n c r e a s e - i A r e d u c z t i o n a l c u k 2 u t s c a n b e g a u g e d by c o m g a r i n g - n u n S e r s of s c h o o l l e a v e r s a n d o f emploFent opportunities i n 1 9 6 2 , i n 1 9 7 0 , and o v e r t h e p e r i o d 1962-70. The l a g between i n p u t t o and o u t p u t f r o s a n e d u c a t i o n a l l e v e l meant t h a t t h e p r o p o r t i o n a t e g r o w t h o f e d u c a t i o n a l o u t p u t s was h i g h e s t a t t h e p r i m a r y i e v e l . The number o f s t u d e n t s e m e r g i n g f r o m t h e t c p of e a c h e d u c a t i o n a l l e v e l ( s t a n d a r d 7 , t o t h e n e x t s t a g e of e d u c a t i o n . This propor.tion d e c l i n e d s h a r p l y o v e r t h e o e r i o d , l a r q e l v owins t o i n c r e a s e d comoeti- numbers c o m p l e t i z ~ gp r i m a r y s c h o o l r e s u l t e d i n a d e c l i n e Zron 36 p e r c e n t t o 1 2 p e r c e n t i n t h e p r o p o r t i o n o f s t a n d a r d 7 l e a v e r s a b l e t o s a i n a c c e s s t o form 1.' a g r i c u l t u r a l wage employment i n T a n z a n i a i n c r e a s e d by a l m o s t 80,000 ( T a b l e 3 ) . Over t h e same p e r i o d t h e number of s t a n d a r d - - 7 l e a v e r s e n t e r i n g t h e l a b o u r f o r c e w a s ~ 3 2 7 , 7 5 0and t h e number - L of p o s t - p r i m a r v e n t r a n t s 32,300. on-aefricultural employment b u t t h e a n n u a l a v z r a q e i n c r e a s e o v e r t h e p e r i o d was 1 0 , 0 0 0 . . were n e a r l y 58,000 p r i n e ~ p l o y e d ,and l a i d down ~ r o c e d a r e sby which w o r k ~ r s ' coinhittees of a dismissal. Workers' c o ~ m i t t e e sare active i n sup2ortizg xorkers' grievances, and i n any c a s e t h e genekal e t h o s would be overwheimicgly a g a i n s t t h e notion t h a t a worker educated worker was available. The i n p l i c a t i o n i s t h a t those i n post generally cannot 5e replzced, and t h a t f i l t e r ' i n g <own can occnr only a s new jobs a r e c r e a t e 6 o r old jobs become bar= by e n t r z x t s t o the wage labour market, zr!ong whom ernpioyers a r e f r e e t o choose. The more rapid expansion of edacational opgortunities f i l t e r i n g do?;n. Scarce wage employxent opportuzzit i e s were r z t i o n e d among coapeting joS-seekers , with t 5 e l e v e l of educational attainment of more r e c e n t r e c r u i t s a s t h e 1 predictable r e s u l t . The cdiicational attainments of d i f f e r e n t . cohorts of e n t r a n t s t o various occupations provide - Table 4 shovs 5he extant * t o vhich educational l e v e l s i n t h e t s e s of manual occupations cbanged over t i o s - The proportion d i f f e r s n t l e v e l s of edccatioa v a r i e s of workers 1~1lth ' than white c o i l a r . UneducateC e 3 t r a c t s and those w i t h ~ n l y s tacdards 1-4 ;.;ere increasingly k e p t out of nanuf a c t u r i q g ern-;lloyment . ,I Ve compare t h e e a r l i e s t c o h o r t , which e n t e r e d waqe~ I erngloynentin i h 2 i a j O s , with t h e l a t o s t , vhich e n t e r e d Zurlag the ciod 1063-1971. l o fewer t h a n 77 p e r c e n t of mania1 worker: in t h e e a r l i e s t c o h o r t had l e s s t h a n S y e a r s of^ e d u c a t i o n , t~ be c o n t r a s t e d w i t h 31 p e r c e n t i n t h e mosk r e c e n t cohort. The tender.cy f o r = h i s p r o p o r t i o n t o f a l l i s t o be found a t each n a n u a l s k i l l l e v e l : even i n t h e c a s e of u h s k i l l e d workers, i t d e c l i n e d from 9 2 p e r c e n t f o r t h e e a r l i e s t l o h o r t I t o 4 6 p e r c e n t f o r t h e 'most r e c e n t . The r e a s o n f o r t h e f a l l I was a f i l t e r i n g down of up9er 2rirnary and -;lost-primary t e a v e r s . I The p r c p o r t i o n of xanual workers w i t 5 stanCard 5-8 r o s e from ~ I 21 p e r c e n t t o 52 ? e r c e n t . Secondary s c h o o l l e a v e r s i n c r e a s i n g l y e n t e r e d t h e s k i l l e d manual o c c u p a t i o n s . than ~ 4 r e a q u a r t e r of t h e 1968-71 e n t r a n t s t o s k i l l e d manual empfoyment I had some seconCary edu cation ; anon9 workers who e n t e r e d t h e s e c-c upations a decade e a r l i e r o n l y 3 per c e n t had been tq I secondary s c h o o l . ,I ~ Althoucjh it w a s n o t a s marked a s i n t h e manual ocdupations', a p r c z e s s of f i l t e r i n g down o c c u r r e d a l s o i n w h i t e c o l l d r I occupations. Again conparing t h e e a r l i e s t w i t h t h e mas$ '9 I recent cohort, w m e f Lid t h a t . t h e p r o p o r t i o n -of whit: - - coliar I vorke s with less than S y e a r s of s c h o o l i n g f e l l fmn 1 9 p e r 6 I c e n t i o 6 p e r c e n t , and t h e p r o p o r t i o n v i t h some secondary s c h o o l i n g r o s e from 36 p e r c e n t t o 5 0 p e r c e n t . Filtering I i n t h e s e j o j s could Se ex-,sckeZ t o clo-.~. c a i n pacz d u r i n g t h e i370s a s I c c a l i z ? t i c n c a c e t o a n en2 and a s zore second4ry I I s c h o o l p u p i l s r e z c h s d the Zorn 4 s x i t soint.  dokm i s a l s o r e v e a l e d i n t h e o c c u p a t i o n a l Filterl~g I d i s t r i b u t i o n OF v a r i o z s c o h o r t s of .a s i n g l e educationsk group. Consider t h o s e xhose h i g h e s t e d u c a t i o n a l a t t a i c n e n t :.?a's s t a n d a r d s 5-8, i.e. upper p r b a r - y s ~ h o o l ~ g Txenty . ypars ago a p r i n a r y s c h o o l c e r t i f i c a t e was a v i r t u a l gtlarantpe of a w h i t e c o i l & j o b i n Tanzania. Thus it i s n o t s u r p r i k i n g . 1 t o f i n d , i n T a l e 5, t h a t f o r t h e c o h o r t o f warkers wikh upper primary s c h o ~ l f - g who e n t e r e d wage e q l o p e n t i n t3e l p 5 0 s 73 p e r c e n t were i n w h i t e c o l l a r o r s k i l l s d jobs and o h l y 7 p e r c e n t i n u c s k i l l e d engloyment, Labour market c c n d i k i o n s changed d r a a a t i c a l l y f o r u D D e r p r b a r y l e a v e r s d u r i n g the 1960s. Only 28 ppr c e n t of t h e n o s t r e c e r A tc o h o r t of e n t r a n t s c o l l a r o r s k i l l e d es2loynen-t- were a b l e t o o b t a i n ~ h i t e The propor t i o n of q ? e r p r i z a r y l e z v e r s e n t e r i n g zancf z c t u k i n 5 who took u n s k i l l e d j o b s : i n c r e a s e d f o u r - f o l d o v e r ths dkczde ; I Note t h a t T a b l e 5 u n d e r s t a t e s t h e e x t e n t of f i l t e r i n g down: ' i t does n o t i n c l u d e t h e r i s i n g p r o g o r t i o c of up?er p r z p a r y l e a v e r s who were u n a b l e t o o b t a i n any urban wage e n p l o b e n t . I I . 5- Occrtpakion an2 Wage D e t e r n i ~ a t i o n - - O u r e v i d e n c e o f f i l t e r i n g Zo:m and i t s uneven i h c i d e n c e -i s '9 - - not s u f f i c i e n t i n i t s e l 2 to explain t h e p o s i t i v e inter-- - Jnction r e s u l t s . I t is n e c e s s x y a l s o t o u n d e r s t a n d t h e r o l e - I t h a t o c c u p a t i o n p l a y s i n wage d e t e r a i n a t i o n . Our f i r s t t a s k I an hdependent i s t o e s t a b l i s h t h a t i t does L?deed p l a y / r o l e . W e t h e n ateercpt L -o e x p l a i n t?.zt r o l e 222 i t s i q l i c a t i o n s f o r t5e intoracklo-  O c c u ? a t i o n a l s o a P Z e c t s t h e c o e f f i c i e n t s on S a n d t. E a r z i z g s f u c c t i o n s s t r a t i f i r 1 d by o c c u p a t i o n a r e ? r e s e n t + d i n T a b l e 7 ( e q u a t i o r r s 13-16). Ki-:h t h e e x c e p t i o n o f t h s k i l l e d manual c a t e g o r y , t h e c o e f f i c i e n t o n L rises w i t 4 +I s k i l l level. T h e c o e f f i c i e n t o n E is s i g n i f i c a n t o n l y l o r t h e I s k i l l e d manual a n d n o n y a n u a l c a t e g o r i e s . The economic v a l u e 1 q o t o n l y of employment e x p e r i e a c e b u t a l s o of e d u c a t i o n o n t h e o c c u p a t i o n i n t ~ h i c ht h e y are a p p l i e d . There is a t e n d e n c y f o r t h e a v e r a g e y e z z s o f e d u c a t i o n a a d o f ern$loyinent experience t o increzse with s k i l l level. Table 7 I C o e r ' Z i c i s n t s cn Z d u c a t i o n and Pnployinent I E x p e r i e n c e f o r D i f f e r e n t O c c u p a t i o n Groups ~ ~ Equation: 13 14 15 Occupation unskilled semi-ski!:led 'skilled nod-manual .' group: 05 04 03 r0 C o e f f i c i e n t on: E -009 -001 .069** L ~2 .033** -.001 .050f* -.001 .041* -.001 Mean v a l u e o f : W E L Other independent v a r i a b l e s included i n t h e equations a t e f o r n a l t r a i n i n g , m i g r a n t s t a t u s , s e x a n d a g e . The i n t e ~ a c t i o n t e r m E . L ?..ras d e l e t e d from t h e r e g r e s s i o n s a f t e r i t prov$d n o t t o 52 s i c j n i f i c a n t . 'I I I The neari v a l ~ e s o f :-1 r e p r e s e n t avara5e c a r n i n ~ sby c c c u & a t i c n i n s h i i l i n q s ?2r z s z t h . I. x h i c h h e b r i n g s t o 3 e a r on t h e j o b c h a t d e t e r m i n e h i s p r o - ductivity. A human c a p i t a l t h e o r i s t would t h e r e f o r e h a v e to a r g u e t h a t t h e s i g n i f i c a n t o c c u p a t i o n a l d u ~ m yc o e f f i c i e n t s a r e a c t i n g a s p r o x i e s f o r human c a p i t a l n o t o t h e r w i s e measured. yc c u p a t i o n However, t h i s e x p l a n a t i o n 5 e g s t h e q u e s t i o n o f ~ h o and unmeasured hcman c a p i t a l happen t o be c o r r e l a t e d . An a l t e r n a t i v e approach - falling within the internal l a b o u r m a r k e t framework - s u g g e s t s ' t h a t o c c u p a t i o n i s n9"L s i m p l y c o r r e l a t e d w i t h huzan c a p i t a l 5 u t d e t e r m i n e s i t . The z n a r a c t e r i s t i c s r e q u i r e d of a worker i f h e i s t o p e r f o r n a j o b c o m p e t e n t l y i n v o l v e nuch o c c u p a t i o n - s p e c i f i c human c a p i t a l . For some j o b s it i s t h e n a t u r e of t h e j o b which r e q u i r e s w o r k e r s t o have inuch human c a p i t a l f o r i t s e f f e c t i v e perfor;nancC, and which a l s o g e n e r a t e s unmeasured human c a p i t a l i n t h e f o r m of t r a i n i n g and e x p e r i e n c a a c q - F r e d on-the-job. A t 5 i r d v i e w i s t h a t o c c u p a t i o n a l wage s t r a c t u r e i s t i n f l u e n c e d by s u c h non-market f a c t o r s a s c u s t o m , i n s t i t b t i o n s , and b a r g a i n i n g , and a d j u s t s o n l y w i t h a l a g t o market f o r c e s . - - The s g g n i f i c a n t o c c u p a t i o n c o e f f i c i e n t s m i g h t i n t h a t case L r e f l e c t non-economic f a c t o r s and p r e v i o u s economic c o n d i t i o n s . * Y e t a 2 o u r t h e x p l a n a t i o n is t h a t t h e occupation c o e f f i c i e n t s r e p r e s e n t payments f o r a h i l i t y o r o t h e r p e r s o n a l c h a r a c t e r i s t i c s o b s e r v e d by t h e employer b u t n o t by t h e r e s e a r c h e r . This c a u l ? he k h s c a s e Lf e x p l o y e r s t r e c r u i t x e n t and p r c z o t i o n d e c i s i o n s :.lere nuch i z f lue.?cec? Sy s u c h c h a r a c t s r i s t i c s .  Both t h e j o b - s p e c i f i c h~nanc a p i t a l and t h e l a g g e d a d j u s t x e n t e x p l a n a t i o n s of si.;nificant o c c u p a t i c n duWy c o e f f i c i e n t s have i n p l i c a t i o n s f o r t h e r e t u r n s t o e d u c a t i o n i n a p r o c e s s o f f i l t e r i n g down. An a n a l y t i c a l framework i s r e q u i r e d f o r a s t u d y of t h e s e i m p l i c a t i o n s . The a p p r b p r i a t a I t h e o r y h a s been d e v e l o p e d e l s e w h e r e : it i s s u f f i c i e n t h e r e t o sketch o u t t h e e s s e n t i a l elements. The c o n c e p t u n d e r l y i n g t h e a n a l y s i s i s t h a t of t h e 'occupational production f u n c t i o n ' , i.e. occupation-specific r e l a t i o n s h i p s bet-deen e d u c a t i o n and p r o d u c t i v i t y . Education is l i k e l y t o b e o f some v a l u e i n most o c c u p a t i o n s S u t i t s v a l u e is u n l i k e l y t o be u n i f o r m . For any one occupation t h e r e l a t i o n between y e a r s o f e d u c a t i o n ( E ) and p r o d u c t i v i t y ( Y ] c a n be i l l u s t r a t e d by means o f t h e o c c u p a t i o n a l p r o d u c t i o n f u n c t i o n Y, i n F i g u r e 1. Below some minimum l e v e l of e d u c a t i o n p r o d u c t i v i t y i n t h e o c c u p a t i o n is z e r o ; a b o v e i t , p r o f i u c t i v i t y increhses with education. The s l o p e o f Y , may d e c l i n e c o n t i n u o u s l y o r r i s e t o a p e a k and s u b s e q u e n t l y d e c l i n e . E v e n t u a l l y t h e c u r v e becomes h o r i z o n t a l : f u r t h e k e d u c a t i o n h a s no e f f e c t on p r o d u c t i v i t y . A second occupation mDy have s i m i l a r c h a r a c t e r i s t i c s b u t q u i t e % i f f e r e n t p o s i t i o n and . '5 s l o p e , e.g. Y2' - - The e f f e c t s o f e d u c a t i o n a l e l p a n s i o n d i f f e r a c c o r d i n g a s wages a r e f l e x i b l e o r r i g i d . Both c z s e s c a n 5 e a n a l y s e d by means o f t h e o c c u p a t i o n a l p r o d u c t i o n f u n c t i o n . Neither e x t r e m e c a s e 1s l i k e l y to z p p l y i n p r a c t i c e ; n e v e r t h e l e s s ,  26a we c o n s i d e r each i n t u r n . Assune t h a t i n i t i a l l y a l l workezs v i t h e d u c a t i o n E l a r e e~i!?loyed i n occupation O 1 , t h a t a l l t h o s e w i t h Z 2 a r e ~inployedj I 02, and t h a t E l , E2 and 0 1 , O2 a r e t h e only al t ern at i ve s. Employees a r e assumed t o r e c e i v e a wage e q u a l t o t h e i r marginal p r o d u c t i v i t y , i . e . El workers r e c e i v e a wage denoted by p o i n t a and E2 :mrkers a wage d e n o t e d Sy 5. I f t h e r e i s an i n c r e a s e i n t h e number of workers w i t h S 1 , a p e r f e c t l y c o q e t i t i v e l a b o u r market responds a s f o l l o w s . The i n c r e a s e i n susply d e p r e s s e s i J , , encouraging emplo$rnent The p r o c e s s c o n t i n z e s u n t i l a wage c o r r e s p o n d i n g t o p o i n t c i s reached. Iiorkers w i t h Z, now f i l t e r down i n t o 02: i n t h e p e r f e c t l y c o m p e t i t i v e c a s e a l l t h o s e w i t h t h e same e d u c a t i o n a l a t t a i m e n t r e c e i v e t h e sane wage, Now consider t h e a l t e r n a t i v e assumption of wage r i g i d i t y : N, r e x a i n s at expansion o c c u r s - I f 97 2 is f i x e d a t a l e v e l c o r r s s p o n d i n g t o p o i n t b, ' s7 workers a r e p r e f e r r e d t o E2 workers i n 0 wage c a s e , x o r k s r s with t h e s a z e e d u c a t i o n a i a t t a i n ~ e n t r e c e i v e d i f f e r e n t wages a c c o r d i n g t o t h e i r occu?ation. Xoreover, i f t h e r e i s some d e g r e e of job s e c u r i t y , t h e Fay of of en2loyment experience: t h e incumbents of qood jobs h o l d ' o n t o t h e n an2 it i s t h e e n t r y c o h o r t s which f i l t e r down. I o c c u p a t i o n s w i t h i n an e d u c a t i o n a l group, and t 5 e n how e a r n i n g s s e t s o u t n o t & l y t h e o c c u p a t i o n a l d i s t r i b u t i o n of upper each c o h o r t , mean e a r n i n g s i n c r e a s e a s o c c u p a t i o n a l s k i l l l e v e l rises. In o t h e r words, a t a given e d u c a t i o n a l an2 - ~ x p e r i e z c sl e v e l , t k e c h c l c e cf o c c c ~ ~ t i odoes n izdeed make a eiffere~cstc s a r 2 i n g s . O n avaraze, uFczr s r l n a r y schcol l e a v e r s w i t h 1 2 c r x o r e y e a r s ' employment e x ? e r i e n c e ( t h e Setxeen e d u c a t i o n azd e n 2 l c p e n t experience. The f z c t t h a t t h e c o e f f i c i e n t on t h e i r i c e r a c t i o n t e r m 2.L i s s t a t i s t i c a l ' y significant in the * ~ n s t r z t i f i er de g r s s s l o n 5 u t n o t i n t h e r e g r e s s i o n s s t r a t i f i e d Sy o c c u p a t i o n 1 s u g g e s t s t h a t t h e c h a n g i n g o c c u p a t i o n a l c o n p o s i t i o n i s r e s p o n s i b l e f o r bhe observed i n t e r a c t i o n . T h e r e i s no n e c e s s i t y f o r a p r o c e s s of f i l t e r i n g down ccmbined w i t h wage r i g i d i t y t o p r c d u c e interaction. F o r i n s t a c c o , it would h a v e Seen p o s s i b k e f o r o u r i n c l u s i o n o f o c c u p a t i o n durmy v a r i a b l e s i n e q u a t i o n s 1-12 t o have p i c k e d up a l l t h e e f f e c t s of changing o c c u p a t i o ~ a l c o m ? o s i t i o n on t h e estimated e q u a t i o n s . However, t h i s is n o s t u n l i k e l y t o h a v e Seen t h e c a s e i n T a n z a n i a b e c a n s e o c b u 9 a t i o n a f f e c t s n o t o c l y t h e c o n s t a n t term i n t h e r e g r e s s i o n s (TaSls 6 ) b u t a l s o t h e values of t h e c o e f f i c i e n t s (TaSle 7) . The i m p l i c a t i o n s o f f i l t e r i n g down c a n be i l l u s t r a t e d a s follows. W e s a w t h a t e n t r a n t s v i t h 5 o r inore y e a r s of e d u c a t i o n i n c r e a s i n q l y took u n s k i l l e d and s e m i - s k i l l e d j o b s (Table 4 ) . These a r e t h e j o b s Eor which t h e c o e f f i c i e n t o n t h e e d u c a t i o n v a r i a b l e i s low ( T a b i a 7 ) . 'The c o e f f i c i e n t o n e d u c a t i o n c a n b e viewed a s t h e w e i g h t e d a v e r a g e o f thd! e d u c a t i o n c o e f f i c i e n t s f o r t h e d i f f e r e n t occupations: t h e g r e a t e r weight - a t t a c h e d t o u n s k i l l e d and s e n i - s k i l l e d cmp1oymen.t f o r t h e more . r e c e n t e n t r y c o h o r t s would t h e r e f o r e r e d u c e t h e c o e f f i c i e n t i n t h e i r case, The e f f e c t o f f i l t e r i n g down on t h e e d u c a t i o n c o e f f i c i e n t i s e v i d e n t from t h e a u c h f l a t t e r s h a p e s o f t h e u n s k i l l e d and s e n i - s k i l l e d t h a n o f t k e s k i l l e d a n d w h i t e c o l l a r  ... . . - . I , . ! \ \ . r . . . . : ' 6 1. , . . . ! :f . I I I . ...... .. . : t I , : : . . - . ... ' ' ;. . - . I ; , ! . . 1 . :: 7 ~. . _ i ! , . . , . .. . . , - ',. 4 1 . . I- - - . - . - . - -- . .- ... 7 - ..:. I . .. - - . .. - . . . . . . , - . .- * ; i . 3 , - . ! ... ..: - : .. . . ..- . . . . I I ; . . \ .I . . . . .. 1 - . -. . . / . . . ., > I . . . . - . , \ . - : - I' ' 4 --- -- . . . . .. . .. .- - - . ., : . !:id-- - D . ! . . . .. -.-- . .q. . . . . . . . . : : " ' I I . : , ; *.:::\: T. . $ . ., . . , . \ ' I . I i ; . .. . r . !: I - , . - I , . . - : , i . : t ' . 1 ' . ' . i . . .,.. .: . I r ; I : . . . I -. . . r t 1 . ; , . ,. I . Ej .- i - . - - . . .::;. . . a! ' . . . .. : ., :.. . .. . t . . . . . --- . . . : t : . : . ! : . . : . i . . . . 8 :.\., .Y I . . : 1 . . . . 3 . . . :.- .. I : . . . .'. I \ - .- . ...--* . . . .-. . . I : . \ I I .i:: 1 . . ! I . -... .- . . . ' , I I ' . . : ' . . : . : I . , . . .. i ; : ._ - . . . . : . . i .,. ;. . .;. ; ! . .. . .. . \ .,\. . .I , ....I . .. ; .. . , . .' .. ; -- \ I - ; . . I. ' .. - - . 1 - - .- I A . I \ I \ . . .. . ; . . I .... - 4 , A i .. ..I . .. : . . : I . 1 ' , . I ., . I . I . ..: 1 , ' \i- . 11,; , - .-~ .7  o c c u p a t i o c a l p r o d u c t i o n fnnc=ions i l l u s t r a t e d i n ~ i g u d o2 . I F i l t e r i n g down i n c o n d i t i o n s i l l r ? s & r a t e d by Figure? 2 c a n I a l s o e x ? l a i n t h e tendency f o r t h e c o e f f i c i e n t on oicpldment experience t o r i s e with t h e l e v e l of education (equat'ons i 9-12 and 9'-12 * i n T a b l e 2 ) . T h i s is b e c a u s e e a r n i n g s by o c c u p a t i o n , and t h e r e f o r e e a r n i n g s by c o h o r t , d i z f e r +re for I t h e b e t t e r educated xorkers. I I A b a s i c c h a r g e has Seen l e v e l l e d z g a i n s t r e g r e s s a n a l y s e s which stress t h e r o l e of o c c u p a t i o n i n wage mination. ci I t i s t h a t endogenous v a r i a b l e s such a s o c u p a t i o n s h o u l d n o t be i n c l u z e d a s independent v a r i a b l e s i n e a functions. ' Education c a n have b o t h a d i r e c t e f f e c t e a r n i n g s and an i n d i r e c t e f f e c t through t h e c h o i c e of o c c u - I p a t i o n : i t can i n f l u e n c e a w o r k e r ' s income w i t h i n an dccapa- t i o n and t h e o c c u p a t i o n i n which h e i s employed. The e f f e c t of i n c l u d i n g o c c u p a t i o n a s an i n d e p e n d e n t v a r i a b l e i s t h u s t o o v e r s t a t e t h e r o l e of o c c u p a t i o n and t o u n d e r s t a t e t h e r o l e I of e d u c a t i o n i n e a r n i n g s d e t e r n i n a t i o n . Such b i a s c a n be I L avoided by e x c l u d i n g o c c u p a t i o n a s an i n d e p e n d e n t v a r i a b l e I fz the earnings function. U n f o r t u n a t e l y , however, a d e w s o u r c e I of e r r o r t h e n a r i s e s . I f q c c u p a t i o n d o e s i n f a c t hav4 an I i i n d e p e n d e n t e f f e c t on earn2ngs a s w e have argued; t h e 3 t h a t & e f f e c t w i l l be missed i n t - regression analysis. I I n s i m i l a r v e i n t h e v a l i d i t y of e a r n i n g s f u n c t i o 3 e s t i n a t e s f o r s t r a t i f i e d snb-samples h a s been q u e s t i o n e d f o r c a $ e s i n I 1. Fields !198C), 2s. 2 4 2 - 5 1 .  . which t h e s t r a k i f i c a t i o n v a r i a j l a i s endogenous.' Only i f t h e l a b o n r x a r k e t is s e g x e n t e d i s s t r a t i f i c a t i o n by o c d u p a t i o n v a l i d ; t h e r z x u s t n o t be r . o b i l i t p bet-xeei; occrtgacions.' If a worker i s n o b i l e , t h e e a r n i n g s d e t e r m h a n t s v i k h i n h$s I c u r r e n t o c c u p a t i o n do n o t r e p r e s e n t t h e s e t e r n i n a n t s o y e r h i s working l i f e . Thus t 5 e d i f f e r e n c e s in t h e o c c u p ~ t ~ o n a l I composition o f t h e v a r i o u s c o h o r t s n i g h t S e mainly t h e r e s u l t of e x p e r i e n c e a c q u i r e d o r promotions a c h i e v e d d u r i n g e i p l o y - I I ment and n o t , a s i q e have a r g u e d , mainly t h e r e s u l t o f I d i f f e r e n t enployment o p p o r t u n i t i e s on e n t r y t o t h e wag< l a b o u r narket . I There a r e two r e p l i e s t o t h i s c r i t i c l s i n . "rst, even i f m o b i l i t y between o c c u p a t i o n s i s s o S s t a n t i a l , t h e d e 6 e r m i n a n t s of e a r n i n g s w i t h i n o c c u p a t i o n s a r e r e l e v a n t t o u n d e r s t h d i n g I t h e o p e r a t i o n of t h e l a b o u r market; t h e d i s c o v e r y that^ s i g n i f i c a n t o c c u p a k f o n a l d i f f e r e n c e s do e x i s t i s i n s t r q c t i v e . Secondly, t h e r e i s t h e d i f f i c u l t e m p i r i c a l q u e s t i o n of t h e e x t e n t of m o b i l i t y between o c c u p a t i o n s , which o n l y l o n g i t u d i n a l . 1 . Fields (1980) , pp. 251-5. L I 2. I t is a l s o i m p o r t a n t , when s t r a t i f y i r g i n t o sub-sam t h a t t h e l a b o u r f o r c e b e homogeneov; w i t h r e s p e c t t - omitted v a r i a b l e s . F i e l d s '(1980r 9 . 2 5 4 ) has a r g u e d t h a t J e d u c a t i o n o r e q e r i e n c e may s u b s t i t u t e f o r a b i l i t y i n determining a v o j k e r ' s occupation. I f high-educatiqn o r l o n g - e x p e r i e n c e workers i n low o c c u p a t i o n s t e n d t o have - L - low a b i l i t y , t h e e f f e c t i s t o r e d u c e t h e c o e f f i c i e n i on education o r experience i n earnings f u n c t i o n s f o r t$ose h . o c c u p a t i o n s . But t h i s argument d o e s n o t p r o v i d e a c o n v i n c i n g e x p l a n a t i o n of t h e t e n d e n c y f o r t h e c o e f k i c i e n t s on e d u c a t i o n and e x p e r i e n c e t o r i s e w i t h o c c u p a t i o n a l l e v e l . B y t h e same t o k e n , low-education o r s h o r t - e k p e r i e n c e worksrs i n h i q h occupations s h o c l z have h i s h a h i l i t , and this s h ~ ~ l re ~e caef f i c i e n t f o r t h e s e occupafioas d d ~ l ct h also.  33 I I I s u r v e y s c a n answsr c o n c l u s i v e l y . I I The s u r v e y i t s e l f p r o v i d e s l i t t l a e v i 6 e a c e on -t$e ex5er.t I of o c c ~ l p a t i o n a lm o b i l i t y . I n f o r m a t i o n i s a v a i l a b l e on I u n s k i l l e d workers saw no p r o s p e c t o f i n t e r n a l ; of * t h e 1 9 p e r c e n t whd saw a p r o s p e c t , t w o - t h i r d s expec e d a s e m i - s k i l l e d job. i1 The e v i d e n c e of t h e s u r v e y i s c o n k s t e n t w i t h o u r argument. However, o u r c a s e r e s t s p r i m a r i l y on t h e r e a s c n s p r a 4 e n t e d i n S e c t i o n 4 f o r b e l i e v i n g t h a t , because of tte loosening i n I t h e l a b o u r market f o r e n t r a n t s which h a s o c c u r r e d w i t h edu- I c a t i o n a l ex?ansion, t h e j c b grospects of labour nark$t e n t r a n t s at m o s t .?F.cca t i o n a i lev2ls 3aue d e t e r i o r a t e d o v e r I ~Iiilsi . n Tailzania. The xose =scent c z k s r r 13 1971 ~ ~ $ n t 1o2 I e x p e c t t o a c h i e v e by 1981 t h e 1'37 1 o c c u p a t i o n a l d i s k 4 i b u t i o n  1 of t h e c o h o r t t e n y e a r s t h e i r s e n i o r . 1 . T h i s h y p o t h e s i s w i l l b e f o r m a l l y t e s t e d u s i $ g t h e com- p a r a b l e s u r v e y c o n d u c t e d i n 1980 by a team z n c l u d i n g t h e authors. I  6 . Conclusion I We-have found e v i d e ~ c e of p o s i t i v e i . ? t e r a c t i o r ! b e t eer! c e d u c a t i o n and e x p e r i e n c e i n o u r e a r n i n g s f u n c t i o n a n a l y b i s o f Tanzanian manufacturing. T h i s r e s u l t is n o t u n i q ~ e 10 T a n z a n i a : it a p p e a r s t o b e a more g e n e r a l , b u t n o t u n i v r s a l , phenoraenon. An e x p l a n a t i o n i n t e r n s o f human c a p i t a l t h e o r y 1 c a n be f o u n d ; t h i s r e q u i r e s o n l y t h e f u r t h e r a s s u m p t i o n t h a t f o r m a l e d u c a t i o n i s i t s e l f an a r q u n e n t i n t h e p r o d u c t i o f u n c t i o n f c r hunan c a p i t a l , i . e . Zorinal s c h o o l i n g and p s c h o o l human c z p i t a l f o r m a t i o n are complementary. ~oveber, a second e x p l a n a t i o n , r e l a k e d t o t h e f - . r e t , i s t h a t i n d e r n a l l a b o u r r a r k e t s a r e so s t r u c t u r e l t h a t a wor!<er8s e d u c a i o n t i n f l c e n c e s n o t o n l y h i s p o i n t of e n t r y and i n i t i a l e a r d i n g s u b u t a l s o h i s s u b s e q u e n t p r o g r e s s and e a r n i n g s t h r o u g h 0 t h i s working i i f e . Our own i n t e r p r e t a t i o n i s t h a t t h e r a p i e.xpansion i n t h e s t o c k o f e d u c a t e d manpower, combined 1 wage r i g i d i t y and j o b p r o t e c t i o n i n t h e l a b o u r m a r k e t , f o r c e d t h e n o r e educaCed e n t r a n t s t o a c c e p t lesser j o b s t h a n t h e i r p r e d e c e s s o r s had done: t h e e a r n i n g s premium on e d u c a t i n f o r 0 more r e c e n t c o h o r t s was t h e r e f o r e lower t h a n Y h a t f o r -cohorts. I n p u t t i n g forward t h i s < explanation', I . w e have n o t I arlier .of f i l t e r i n g down and i t s i m p l i c a t i o n s h a s t h e E r e j e c t e d t h e c o n v e n t i o n a l e x p l a n a t i o n s . Howwer, I s i m u l t a n e o u s l y s o l v i n g more t h a n o n e p u z z l e . Whether kt can be g 2 n e r a l i z e B t o o t t e r c o u n t r i e s r a o a i z s to 3e r e s e a r b h e d . I T h e i n p l i c a t i o n s of o u r e x p l a n a z i o n f c r t h e e s t i r n a k i c n I of r e t u r a s t 3 e d s c a t i o ~ .a r e f a r - r e a c h l 2 5 . I f the rise i n t h e ' - r e t u r n ; t o e d u c a t i o n w i t h employment is p a r t l y o r mainly due t o a f a l l i n t h e r e t u r n s t o t h e m o r e r e c e n t c o h c r t s , t h e n t h e c a 5 f f i c i e n t on t h e e 2 u c a t i o n ~ ~ k r i a ~ l e i n o u r r e g r e s s i o n e v a t i o n , Sy a v e r a g i n g o v e r t k e samplb a s a whole, o v e r e s t i m a t e s t h e a a r g i n a l r e t u r n s t o e d u c a t i o n . It I is of course t h e marginal, n o t t h e average, r e t u r n s t h a b a r e I I r e l e v a n t t o b o t h p r i v a t e and p u b l i c d e c i s i o n - m a k i n g o n educational investment. The c a e f f i c i e n t o n e d u c a t i o n ZFOng I w o r k e r s i n t h e most r e c e n t (1968-71) e n t r y c o h o r t i s p e r h a p s a b e t t e r measure o f t h e m a r g i n a l r e t a r n s t o e d u c a t i o n t h a n t h e I I coefficient i n the unstratified reqression. I f so, t h e gross p r i v a t e r e t u r n s p e r y e a r of s c h o o l i n g i s a t h i r d l e s s t h a n I p r e v i o u s l y i n d i c a t e d , i.e. e a r n i n g s i n c r e a s e by 3 . 1 :?er c e n t f o r each a d d i t i o n a l year of schooling (equation 5 ) i n s t b a d of by 4.9 p e r c e n t ( e q u a t i o n 1 ) . We r e c o g n i z e t h a t t h e ;sb o f I t h i s c o e f f i c i e n t c a r r i e s w i t h i t t h e d a n g e r o f downward b i a s i f i n d e e d , w i t h i n a human c a p i t a l framework, s c h o o l a n d p o s t - s c h ~ o li n v e s t m e n t s a r e p o s i t i v e l y c c r r e l a t e d : t h e e a r n i n g s o f t h e more e d u c a t e d a r e d e p r e s s e d x c r e t h a n t h o s e o f t h e less e d u c a t e d w h i l e t h e y pay f o r t h e i r t r a i n i n g . k o w e v e r , o u r c o n t r i b u t i o n i s t o e x p l a i n why t h e u s e o f t h e c o e f f i c i e p t on e d u c a t i o n d e r i v e d in t h e c o n v e n t i o n a l way would p r o d u c e : upward b i a s i n t h e T a n z a n i a n c a s e . - I t i s no more t::,?.n that: . we d o n o t a r g u e i n t h i s p a p e r r h a t t h e f i l t e r i n g down r b v e a l e d by t h e s u r v e y was a bad t h i n g , n o r t h a t t h e t r u e n e t r a ~ t eo f r e t u r n t o education precluded a policy of continued educational expansion. T h i s s t ~ 2 y ,i i k 2 v i r k - a l l -r a l l eccnoxstr lc research i n t o ../age s t r c c t u r s s i n C e v e l c y i 3 g c c c n t r ~ a s , is based o n data f o r a c r o s s - s e c t i o n of t h e l a j o u r f o r c o . Given t h a t t h e a n a l y s i s n u s t b e e s s e n t i a l l y s t a t i c , t h e r e i s a t e n d e n c y t o ma4e a v i r t u e o u t o f a n e c e s s i t y 5 y assuiaing t h a t t h e snapshc$t i s of t h e l a b p u r inarket i n e q u i l i b r i u m . Lv'hen i t i s a t o$<s w i t h the facts, the a s s u ~ p t i o no f s t a t i c e q u i l i b r i u m c a n 5+ x i s - leading. C r o s s - s e z t i o n e v i d e n c e t h a t makes s e n s e o n l y when viewed i n t h e c o n t e x t . o f a dynamic l a b c u r n a r k e t i n C i s e q u i - I l i b r i u m c a n n o t S e f o r c e d i n t o an e q u i l i b r i u m mould. $he c o n v e n t i o n a l i n t e r p r a t a t i o n s of t h e r i s e i n t h 9 c o e f f i c i e n t I on e d u c a t i o n w i t h em?loyment e x p e r i e n c e n&y w e l l h e a c a s e i n point. I n s t i t u t e o f Economics and S t a t i s t i c s , U n i v e r s i t y 02 Oxford. World Bank, Washington D.C.  Anderson, L a s c e l l e s ( 1 9 8 0 ) . ' g a t e s o f r e t u r n t o hunan c a p i t a l : a t e s t u s i n g 51 S a l v a d o r d a t a ' , A n e r i c a n Sconomic Review, P a p e r s and P r o c e e d i ~ q s , 7 0 , 2;Nay. 3 l a u g , Mark ( 1 9 7 4 ) . ' A n economic a n a l y s i s o f p e r s o n a l e a r n i n g s i n T h a i l a n d ' , Economic Development and C u l t u r a l Change, 23, 1, OctoSer. 3 l a u g , Nark (1976) . 'Human c a p i t a l t h e o r y : a s l i g h t l y j a u n d i c e d v i e w ' , J o u r n a l o f Economic L i t e r a t u r e , 11, 3 , S e p t e n b e r . a l i n d e r , Alan S. (1976). 'On dogmatism i n human c a p i t a l t h e o r y ' , J o u r n a l o f Human R e s o u r c e s , 11, 1, W i n t e r . F i e l d s , Gary S . ( 1 9 8 0 ) . ' E d u c a t i o n and income d i s t r i b u t i o n i n d e v e l o ~ i n gc c u n t r i e s : a r e v i e w o f t h e literature.'^, i n ~iaothy ~ i n g ( e d . ) , S d u c a t i o r and Income, World B~ank S t z f f Workinq P a p e r No. 402, S u l y , Washington D.C. : < a l v o r s e n , R o b e r t a n 2 P a l ~ q u i s t ,R a p o n d ( 1 9 8 0 ) . 'The i n t e q r e t a t i o n o f dumiy v a r i a b l s s i n s e m i - 1 c ; z r i t h m i c e q u a t i o n s ' , Aixericzn Econcmic X e v i e v , 7C, 3 , J u n e . - 2 s k s o n , Dudley ( 1 9 7 9 ) . 'The d i s a p ~ k a r a n c eo f s t r i k e s i n ! T a n z a n i a : incomes p o l i c y and i n d u s t r i a l d e m o c r a c y ' , J o u r n a l o f 14odern A f r i c a n S t u d i e s , 1 7 , 2 , J u n e . ::night, J . 3 . (1979) . 'Job competititcn, occupational production f u n c t i o n s , and f i l t e r i n g dow:', Oxford Economic q a p e r s , 31, 1, J u l y . I n i g h t , J . 9 . and S a b o t , R.H. ( 1 9 8 0 ) . Why Wages D i f f e r : X S t u d y o f T a n z a n i a ' s Y a n u f a c t u r i n g S e c t o r , World Bank, h Washington D.C., mineo. I L a y a r d , R . a n d P s a c h a r o p o u l o s , G . ( 1 9 7 4 ) . 'The s c r e e n i n g h y p o t h e s i s and t h e s o c i a l r e t u r n s t o e d u c a t i o n ' , , J o u r n a l of P o l i t i c a l Econorny~ 82, Octcber. '9 . Mazumdar, Dipak ( 1 9 7 9 ) . U r h n Labor Market and Income D i s t r i 5 u t i o n i n P e n i n s u l a r H a l a y s h , World Bank, Washington D.C., mimeo . X i n c e r , J a c o b (1974 . h - S c h o o l i n g , E x p e r i e n c ~and E a r n i n q s , N a t i o n a l Bureau o f Zconomic R e s e a r c h , New York. ? s a c h a r o p o u t o s , George ( a s s i s t e d by H i n c h l i f f e , K e i t h ) ( 1 9 7 3 ) . R e t u r n s t o E d u c a t i o n . An I n t e r n a t i o n a l C o n p a r i s o n , X l s s v i z r , Xns t s r d a n . ? s a c ! ? a r c ~ o u l o s ,Gsorqe :1 9 7 7 1 . 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