Does an extra year of primary schooling yeild higher earnings?: Evidence from Kenya

Abstract

In 1985 significant school reforms prolonged the duration of primary schooling in Kenya from 7 to 8 years. The goal of the reforms, amongst other changes, was to increase skills and consequently increase earnings for workers with primary school education. This paper explores whether the extra year of primary schooling may have enhanced skills and consequently increased relative wages for workers with the additional eighth year of primary schooling. Such an analysis is important for two reasons. First, we are the first to gauge the impact of the reforms on relative wage changes for workers with primary school education in a developing country setting particularly in sub-Saharan Africa. Second, and more importantly, such an inquiry is warranted because by focusing solely on relative wage changes for primary school educated workers, we consider whether the reforms did actually increase relative wages for workers with more i.e. 8 years of primary schooling without the confounding effects of post primary school education (i.e. secondary, tertiary, middle-level and university education) on earnings. Our empirical technique takes advantage of exogenous variation induced by the new policy and employs a data-driven pseudo regression discontinuity design to consider whether the new school reforms did indeed create a wage discontinuity for workers with 7 and 8 years of primary school education at the cutoff point in 1985. Utilizing data from the 2004/2005 Kenya Integrated Household Budget Survey, our findings shed new light. We find that although the relative wage for workers with 7 years of primary schooling is marginally higher, the trajectory of the age-earnings profile is relatively steeper for workers with the 8th year of primary schooling. This finding, consistent with human capital theory, suggests that workers with the extra year of primary schooling would earn a higher future relative wage. As such, from a policy standpoint, increasing the duration of primary school education may be a necessary but not a sufficient condition for increasing relative wages for workers with the added year of primary schooling at least in the short run. Short run underlying factors, such as differences in age, years of labor market experience, compounded by transition bottlenecks (not considered in this paper but widely discussed in the literature) may inhibit an instantaneous wage increase for workers with the added year of primary schooling.