The impact of education on self-employment, farm activities and household incomes in Malawi

The human capital theory has been widely used to estimate rates of return on education from wage employment. This poses a lot of challenges in developing countries where a large proportion of the labour force is outside the labour market. This has led to the extension of the traditional model of returns to education in wage employment to assessment of the benefits of education for those individuals that are self-employed in agricultural and non-farm economic activities. There have been a number of studies that have estimated the rate of return on education from self employment . Some of the studies have compared rates of return from self-employment and the returns from wage employment. <br /><br />The case of Malawi is no different from that of other developing countries in which the labour market participation rate is quite low. Chirwa and Matita (2009) note, in the case of Malawi, that the formal labour market absorbs a smaller proportion of the labour force. Most Malawians are engaged in self-employment activities or in paid employment in the informal sector. <br /><br />The results reveal that for different levels the returns to education are lowest with respect to maize production (1.3 &ndash; 7.3%), followed by tobacco earnings (3.5 - 25%) and highest with respect to business enterprises (4 &ndash; 71%). The returns from overall household income per capita range from 1.4% in primary education to 27% in university education. In all cases the return from primary education are very low, suggesting that primary education may be necessary but not sufficient for poverty reduction. The simulation of impacts of education on household income has revealed that targeting the poor households to complete higher education almost eliminates poverty, although major changes in poverty occur with ensuring that at least one member of the household complete junior secondary school and most of the income among Malawians comes from non-wage income earning activities such as farming and operation of business.<br />.