Educational Policy and Labour Productivity: An Output Accounting Exercise.

Output accounting methods are used to measure the effect of education on labor productivity. Some of the drawbacks of this approach to estimating the contribution of education are overcome by exploiting a "natural experiment" (Kenya and Tanzania are similar in relevant respects except in their policies for secondary education) and by introducing and measuring cognitive skills and reasoning ability as links between education and earnings. The greater quality of education and quantity of secondary education in Kenya are shown to have an important effect on earnings and productivity. The implication is that Tanzania might gain considerably from adopting Kenya's educational policies.