Education and allocation of skills in Tunisia: Evidence from an education reform

An often cited explanation for the weak growth effects of education in developing countries is the misallocation of educated workers to inefficient activities in the public sector. This paper assesses the strength of this argument by studying the effect of educational attainment on employment status of Tunisian men. We exploit policy changes that restricted access to secondary education in the 1970's as an instrument for education and use data from 2004 Tunisian census as well as 2010 Labor Force Survey to estimate the effect of education on working in different sectors and within specific occupational categories. Consistently with the misallocation argument, we find that education increases employment, but that this increase is concentrated either in relatively low skill white collar occupations or in the public sector. Given that our instrument probably affected the academically weaker students this pattern of results suggests that the public sector might inefficiently reward titles.