Education, Employment and Earnings of Secondary School-Leavers ...

4. MethodologyThe primary objectives of our research are served by the estimation of earningsequations for the sample of traced Tanzanians. In order to elicit responses that areless prone to measurement error interviewees were asked where their gross monthlyearnings were located within a number of mutually exclusive categories. Theintervals used for the sampled employees in our case commence at 0 to 50,000shillings and rise by amounts of 50,000 for the next five intervals. 13 The penultimateinterval is 300,000 to 400,000, and the final interval is open-ended and captures thoseindividuals with earnings greater than 400,000 Tanzanian shillings. There are thuseight coded intervals for the case of employees. A corresponding exercise wasconducted for the self-employed but the intervals used are different. They are ten innumber and, in contrast to the wage employees, relate to a bi-annual earningsmeasure. 14 However, the econometric methodology outlined is identical for bothcases and for convenience the exposition is cast in terms of the earnings categories forthe employees.The data on the dependent variables are ordinal in nature but interval coded. Anappropriate econometric procedure is required to deal with the nature of these codedresponses. There are two possible procedures that could be exploited here. Thecruder of the two involves setting earnings to the mid-point of the relevant intervalsand applying the ordinary least squares (OLS) procedure. A more desirable approach,however, is to follow Stewart (1983) and use an appropriate likelihood function forthe application at hand. The likelihood function is a modification of that used in theestimation of the standard ordered probit model and replaces the unknown thresholdvalues by the set of known thresholds that delineate the intervals. The responses onthe dependent variable are grouped. In the early literature this type of model wasreferred to as a grouped dependent variable model but more recently the term intervalregression model has been used to describe it.13 At the time of the survey there were 876 Shillings to the US dollar.14 The precise intervals for the self-employed are described in the notes to table 5.11