Education and wage inequality in the informal sector: The case of Cameroon

• DOI: http://doi.org/10.1111/ilr.12096
• Author: Henri ATANGANA ONDOA
• Date: 01 September 2019
• Published date: 01 September 2019

International Labour Review, Vol. 158 (2019), No. 3

Copyright © The author 2019

Journal compilation © International Labour Organization 2019

* University of Yaoundé II, email: atanganaondoa@yahoo.fr.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

Education and wage inequality

in the informal sector:

The case of Cameroon

Henri ATANGANA ONDOA*

Abstract. This article analyses the effects of education on wage inequality in the

informal sector in Cameroon. The author uses quantile regression on data from

the Second survey on employment and the informal sector in Cameroon (EESI 2)

of 2010. The results indicate that both wages and wage inequality increase with

education in the informal sector, with tertiary education creating greatest inequal-

ity. These ndings point to a number of policy recommendations for a transition

to formality, such as the creation of more jobs for a skilled workforce, the devel-

opment of sites adapted to informal sector activities and the creation of more

vocational schools.

Education plays a decisive role in the determination of earnings. Indeed,

differences in educational attainment explain disparities in earnings

even when unobserved differences in ability are accounted for, providing evi-

dence of the productivity-enhancing effect of education. Cyclical uctuations

of returns to education can, therefore, be attributed to shifts in both supply

and demand that are unrelated to changes in individual productivity. Acemo-

glu (2003) provides a model to account for the various dynamics observed in

wage inequality. In his model, skill-biased technology raises the relative returns

to education, under the assumption that new technologies are complementary

to education. This represents a genuine increase in productivity that translates

into earnings (Checchi, 2006). It is thus natural to assume that a greater sup-

ply of education reduces relative wages for the more educated. However, de-

spite the increased number of graduates, their wages have not fallen relative

to those of non-graduates. It is thus evident that widening wage gaps between

more and less educated workers have contributed to rising wage inequality

(Machin, 1996).

International Labour Review562

Some early work on this subject attributed a sizeable proportion of

growing wage inequality in the 1980s to education, and to new technolo-

gies and how they had altered employers’ demand for workers with differ-

ent skills or education. According to Machin and Van Reenen (199 8), the

new technologies entering modern workplaces favour skilled and educated

workers, creating a bias towards such workers and driving the formation of

the observed wage gaps. The rationale is that these new technologies lead to

higher productivity, but that only some workers possess the necessary skills

to use them. Employers are prepared to increase the wages of skilled work-

ers, who are complementary to these new technologies, while less-skilled

workers, who are not competent to operate them, see their wages lowered

or lose their jobs. As a result, the relative wages and the employment rate

of the more highly skilled workers rise (Machin, 2004; Budría and Pereira,

2005; Breau, Kogler and Bolton, 2014).

In 1993, the 15th International Conference of Labour Statisticians de-

ned the informal sector in terms of the characteristics of the “economic unit

of production” or enterprise (hereafter production unit) in which activities

take place, as opposed to the characteristics of the workers or their jobs. Ac-

cordingly, people employed in the informal sector were dened as compris-

ing all those who, within a given reference period, were employed in at least

one informal sector production unit, irrespective of their employment status

and whether it was their main or secondary job. In order to distinguish in-

formal sector units from unincorporated enterprises owned by households,

the aforementioned conference recommended the use of one or more of the

following three criteria: (i) small size in terms of employment; (ii) absence

of a division between labour and capital as factors of production; and (iii)

the employment of workers without social and legal protection (ILO, 1993).

In Cameroon, all the production units that do not have a taxpayer

number and/or do not keep formal written accounts are considered to be

in the informal sector. In 2010, the number of informal production units

throughout the national territory was estimated at just over 2.5 million, of

which nearly half (49.5 per cent) were found in rural areas, 33.3 per cent in

the cities of Yaoundé and Douala, and the rest (17.2 per cent) in other cities

(National Institute of Statistics, 2011a). Under Decree No. 2014/2217/PM of

24 July 2014, the minimum wage in Cameroon was set at the equivalent

of US$60, whereas the monthly average wage in the informal sector stands

at US$102. This average wage moreover covers wide variations according

to place of residence, from US$130 in urban areas to US$80 in rural areas

(National Institute of Statistics, 2013).

The objective of this study is to estimate the effects of education on wage

inequality in the informal sector in Cameroon. In this regard, the remainder

of this article is organized into three main sections. The rst section presents

the methodology and data, while the second section presents the empirical

results. The last section concludes and puts forward policy recommendations

derived from the article’s ndings.