Determinants of earnings in Eritea : a first attempt to estimate the Mincerian earnings function

Master Thesis


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University of Cape Town

This paper attempts to estimate the Mincerian earnings function for Eritrea by employing Eritrean Household Income and Expenditure Survey (EHIES) 96/97 data. The Mincerian earnings function is estimated by using OLS and Heckman two-stage econometric techniques. The latter was found to be plausible because it avoids selectivity bias. The list of potential determinants of earnings is broadened to include education, potential experience, occupation, gender, the pre-independence history of workers and region. On average, the rate of return to education increases with increased years of schooling. The highest rate of return is found for a technical school or university diploma, followed respectively by a university degree, secondary, middle and elementary schooling. Females enjoy a higher rate of return to education than males. The rate of return to education differs substantially between private and public sector employment. Ex-fighters enjoy some form of special wage premium in view of the importance of their pre-independence history and this party premium is substantially higher in the public sector than in the private sector. There is also a peak level of experience that positively affects earnings. The effect of experience on earnings is greater in the private sector than in the public sector. Occupational choice is one of the determinants of earnings in Eritrea; however, not all occupational groups affect earnings significantly. There is also a regional earnings differential in Eritrea.

Bibliography: leaves 41-44.