the Returns to Education in Tanzanian Manufacturing Firms

Although the debate over the returns to vocational versus general education has become an important research in education, adequate empirical work in Africa is still lacking. We add new evidence to this debate by comparing returns to vocational and general education of workers in Tanzanian manufacturing firms. Whereas most of the previous evidences are based on cross sectional data, this paper provides a comparison of the returns to general and vocational education using firm level panel data with substantial information that allows a control for time invariant firm attributes, endogeneity of education and other worker- firm characteristics. Findings of this paper are that general education is more rewarding than vocational education and on the job training. The marginal rates of returns to one year of education ranges between 4.8 and 17.5 percent compared to the rates of returns to one year of vocational education that ranges between 1.4 and 2.8 percent. The results are stable even after we control for endogeneity, firm-worker characteristics and firm fixed effects. Therefore we reject the hypothesis that returns to vocational training are higher than the returns to general education. The paper also shows that at high level of general education unemployment in the Tanzanian labour market is low. Based on this papers findings vocational education cannot substitute general education. Hence it is justifiable for individuals to acquire more of general education and acquire vocational education and training after general education. There is economic rationale for allocating more resources to the general education