Education, experience and earnings : a multilevel analysis : a case study of the manufacturing sector in Iran
This thesis examines the relationship between education, experience, and earnings in the context of human capital theory in the manufacturing sector of Iran. Using a sample of 15755 full-time male workers clustered within 35 firms, both single-level and multilevel statistical techniques were employed to evaluate the contribution of education and experience to earnings. The research also examines the advantages of applying a multilevel method of analysis to investigate the above relationship. This study has shown that, in the manufacturing sector of Iranian industry, the amount of education and experience is significantly and systematically associated with the earnings of employees. This helps to corroborate the notion that human capital acquired through education and experience provides individual economic benefits through improving the earning capacity of individuals. These findings are consistent with many other analyses of earnings based on human capital theory. The multilevel analysis showed that data used are affected by a hierarchical or clustered structure and the relationship between human capital variables and earnings varies across firms. As a result, as argued by multilevel methodologists and confirmed by our findings, the application of the OLS models in a hierarchical structure leads to incorrect inferences. This study has also shown that the relatively new statistical technique of multilevel modelling provides a powerful tool for examining earnings differentials and some of the effects of labour market structures on earnings. In general the use of a multilevel model provides evidence for the pecuniary externality effects of human capital. By treating individual firms as second level units of analysis, it has been shown that part of the differences in earnings can be attributed to the firms in which individuals are working. In particular clusters of highly educated people seem to have a positive effect on the amount of human capital created through experience. It would be interesting to see whether this finding has wider application. The multilevel technique also strengthens the explanatory power of human capital variables. Using qualitative methods, this research also examines the question "why does investment in human capital increase earnings?" The main findings tend to support the human capital interpretation of education rather than pure screening.