Does Higher Education Influence Productivity of Graduates? Evidence from Tanzanian Manuafacturing Enterprises

Abstract

This paper examines the effects of higher education on worker’s performance in the labour market.  It does so by estimating firm level productivity effects of higher education in Tanzania manufacturing enterprises.  The estimates are obtained from a Cobb-Douglas production function that treats higher education is one of the determining variables of productivity.  The analysis drawn from such estimates contributes knowledge to two empirical questions: i) Are there gains from investment in higher education to employers? ii) What is the influence of productivity in explaining higher wages to graduates? Data used is employer-employee matched data from Tanzania enterprises from 1994 till 2008.  Time dimension of the data allows controls for time invariant individual characteristics that are potential sources omitted variable bias in micro analysis like the one provided in this article.  The findings strongly support the hypothesis of positive correlation between higher education and worker productivity.  The ordinary least square estimate on the proportion of the workforce with higher education increases observed productivity by 0.27%.  But generalized method of moments coefficient estimates are 0.0009 and statistically significant, showing that our ordinary least square estimates were biased.  The results also confirm a positive correlation between productivity and a graduate manager.  Using such results, the article concludes that there is robust evidence that productivity is affected by higher education, in the data.  Hence, employers gain from utilizing higher education graduates through increased firm performance especially productivity.  There is therefore a justification for employers to support higher education.