Private sector development and income dynamics: A panel study of the Tanzanian labour market

In this paper, we use a three-period panel of Tanzanian households to explore the determinants of earnings and earnings growth from 2004 to 2006. In doing so, we draw particular attention to the role of education and to the importance of heterogeneity between more and less formal occupations. Several important conclusions emerge. Education is found to have a significant convex effect upon earnings levels, but to have had no significant effect upon earnings growth (indeed, there is some suggestion that education may have had a negative impact). This suggests that recent Tanzanian growth may have reflected an ‘unskill-biased technological change’, providing relative reward to informal skills rather than to formal education. Further, there are interesting insights into the age-earnings relationship: the relationship is found significantly to be concave in levels, yet age is not found significantly to have affected earnings growth. This suggests that the concave levels relationship is driven by workers’ participation decisions, rather than by a concave earnings trajectory at the level of the individual worker. Finally, we find significant evidence of variation between formal and informal enterprises, and between sizes of enterprises within these different employment sectors.