Are educated workers really more productive?

Abstract

This paper presents a new method for examining the productive nature of education. It outlines an econometric model which simultaneously estimates an earnings function and a production function for workers and the firms where they are employed. This approach permits a direct comparison to be made between the relative wage and relative productivity of workers with different levels of education. Using a unique data set from Ghana, two primary questions are addressed: (1) Are educated workers more productive than workers with no formal education? and (2) Do earnings differentials between workers with different levels of education reflect genuine productivity differentials? The results suggest that education is positively correlated with productivity in Ghanaian manufacturing, and that firms pay workers according to their productivity.