activities declines monotonically with higher levels of welfare. However, it is worth mentioning that given the complex nature of measuring income accruals from informal sector activity and different kinds of payment systems in existence in the sector, formal sector employment and formalized manufacturing sector has mostly been the subject of analysis in earnings and employment literature. It is worth noting the fact that in informal sector activities accruals are a mixture of wage and profits and hence can not be used in more conventional wage earnings analysis that follow in the next section.

# 5. **Education and Earnings**

An important issue in the analysis of labor markets in Ghana is the way the economic decline and subsequent recovery of the economy has impacted the earnings differences in Ghana with respect to education. The availability of the GLSS data set for the period when the economic recovery program was just beginning to have an impact and more recently for 1991-2 enable us to shed some light on this major topic.

It should be clearly stated at the outset that the variation of earnings with education levels might be quite different for the three major types of labor which existthe self-employed, the wage employees in the private sector, and wage employees in the public sector. Clearly wage determination in the public sector is administrative. Although the significant size of this sector would be a factor in affecting the demand for labor in the labor market as a whole, private employers would tend to set wages in a much more competitive way. As far as the self-employed are concerned, it might be argued that if the labor market functioned well, their structure of earnings would be the same as that of the private sector wage earners. But there are two relevant points against this happening. First, the observed earnings of the self-employed are only partly returns to labor-for many a major part of the income might be returns to entrepreneurship and capital. Secondly, in a developing country the many factors segmenting labor markets drive a wedge which keeps returns to labor apart in different segments. In particular, we have already seen in the last section that wage levels, after controlling for education and age, vary substantially by the size of firms in the manufacturing sector, and that the premium enjoyed by employees in large units compared to micro-enterprises is substantial. Does this segmentation also affect the returns to education in the wage employment sector-much of which is the 'formal' part of the labor market-compared to the self-employed representing the 'informal' sector?

Canagarajah and Thomas (1997) provide an over-all picture of the relationship of earnings to education in the wage employees' market, without distinguishing between the private and public sectors. The estimated earnings functions for the two dates-1987 and 1991-- are reproduced in the two Tables V. 1 and V.2, the first one using schooling as a continuous variable, the second using various levels as dummy variables. Both sets of equation reveal a positive and significant effect of education on earnings in Ghana. But attention should be drawn to three important points brought out by these results.

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