Do employers use education as a signal for ability in developing countries? Evidence from Ghana

Abstract

This study investigates whether employers in developing countries use education as a signal for employees’ productivity using data for Ghana manufacturing. Evidence is found supportive of this for individuals who were not hired through direct contacts in the firm, and thus for individuals for whom employers are likely to have relatively less information about their productive abilities. This result seems to rest on adequately controlling for on-the-job-training.

Acknowledgements

Thanks are due to Francis Teal from the CSAE at the University of Oxford for provision and help with the data, and due to Mark Cassidy, Holger Görg and Frank Walsh for comments on an earlier draft. All remaining errors are the author's.

Notes

¹ Of course the lack of certainty may not necessarily be the causal factor for employers seeking employees through informal contacts, as this sort of recruiting process may be due to institutional and cultural features of the often very tight knit communities in developing countries. Regardless of this, employers are more likely to have superior information on workers hired through such channels.

² See Weiss (1995) for a review and Altonji and Pierret (2001) and Bauer and Haisken-DeNew (2001) for recent empirical studies.

³ For a more detailed description of this data set see Teal (2000). Our choice of the fifth wave rather than earlier waves was due to its superior information on how the worker heard about his/her job.

⁴ The mean and standard deviation were 46 and 42 months, respectively.

⁵ See Hashimoto (1981), Hashimoto (2001), and Leuven and Oosterbeek (2001).