The interest for this thesis as stated earlier is the desire to understand where differences in labour wages/incomes and household consumption levels come from in developing countries, as they might depend on any of the employment statuses shown in the conceptual model captured in Figure 2.
The section of the analysis labelled “I” seeks to answer the question: “How do educational attainments affect the probability of belonging to any of the employment states in a developing country?” By investigating this, the thesis aims to discover patterns in educational attainment (if any) as they affect the occupational statuses expressed in the conceptual model. This enquiry should be useful since human capital has already been identified as a major determinant of occupational capital in developed economies. It would therefore be extremely beneficial to empirically investigate for developing countries if there are patterns that might reflect the probability of having a particular employment status, depending on individual human capital expressed in educational attainments.
The whole of the investigation marked “II” is dedicated to the main research objective of this thesis, which aims to uncover how differences in labour wage and household consumption levels relate to any of the employment statuses shown in the conceptual model; this investigation is done in two parts. The aim of the first part of the analysis marked “IIIA” is to empirically analyse how labour wage is determined by labour force participation status after the thesis has observed how educational attainment reflects occupational status in part “I”. The second part, marked “IIIB”, seeks to determine how household consumption expenditure is determined by the proportion of individuals in each occupational category.
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Therefore the thesis makes use of three specific, testable (falsifiable) hypotheses. They are based on precise predictions made from the existing literature and consist of:
Expected Prediction i : From the literature that will be surveyed in section 2.3.1, it is expected that as individuals become more educated in developing countries, they will opt paid work over self-employment. This means that the expected pattern for the data from a developing country is to predict that more educated individuals will be engaged in wage work/paid employment while less educated individuals are expected to be in self-employment. Thus the hypothesis 1 seeks to address this inquiry.
i. “Hypothesis 1”𝐻1: Educational attainments will affect the probability of belonging to an employment status in a developing country.
The Hypothesis 1 addresses the portion of the conceptual model labelled “I” which seeks to answer the question: “How do educational attainments affect the probability of belonging to any of the employment/occupational states in a developing country?” By performing this analysis, the thesis aims to discover if there are patterns in educational attainments as they affect the occupational statuses. Precisely, the thesis aims to investigate if more educated individuals are to be found in self-employment or paid-employment/wage work.
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Expected Prediction ii: From the literature that will be surveyed in section 2.4.1, it is expected that self-employed individuals in developing countries will experience a labour wage penalty when compared to wage earners/paid workers. This means that the expected pattern is to predict that individuals in self-employment in the data from a developing country should experience a labour wage penalty compared to wage earners. Thus the hypothesis 2 seeks to address this inquiry.
ii. “Hypothesis 2”𝐻2: Workers experience a labour wage penalty or premium depending on their occupational status in a developing country.
The Hypothesis 2 addresses the portion of the conceptual model labelled “IIIA” which seeks to empirically analyse how labour wage is determined by labour force participation. By performing this analysis, the thesis aims to discover if there are patterns in occupational statuses as they affect labour wage. Precisely, the thesis aims to investigate if paid/wage workers typically earn more or less than self-employed individuals conditional on observable characteristics.
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Expected Prediction iii: From the literature that will be surveyed in section 2.4.2, it is expected that self-employed individuals in developing countries are disadvantaged across a number of welfare indicators when compared to wage earners. This means that the expected pattern is to predict that individuals in self-employment in the data from a developing country should be worse- off in terms of household consumption when compared to wage earners. This also means that having a higher proportion of self-employed individuals in the household workforce should have a negative relationship with total household consumption and having a higher proportion of wage earning household workforce should have a positive relationship with total household consumption. Thus the alternate hypothesis 3 seeks to address this inquiry.
iii. “Hypothesis 3"𝐻3: Total household consumption expenditure will depend on the
employment status composition of employable household adults in a developing country.
The Hypothesis 3 addresses the portion of the conceptual model labelled “IIIB” which seeks to determine how total household consumption is determined by the proportion of household individuals in each occupational category. By performing this analysis, the thesis aims to discover if having a higher proportion of a particular occupational category is beneficial or detrimental to household consumption.
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Taken together, the central aim of this thesis therefore is to examine one human capital indicator – educational attainment; and two welfare proxies – labour wage and household consumption for workers, in order to establish their relationship(s) with occupational statuses in developing countries. By extension, since we have the relationship expressed in Figure 2 where rationality should imply that individuals choose whatever employment status gives higher returns in terms of labour wage and household consumption, we can observe if individuals and households are advantaged or disadvantaged (in terms of labour wage/income and total household consumption), given their employment characteristics.
Worthy of note is the conventional fact that labour wage and household consumption could have an influence on each other. Labour wage is expressed at the individual level while household consumption is measured at the household level. The portfolio optimisation of households leads to choices of individual employment that might be aimed at maximising household consumption. This way we can see that activities of individuals as regards labour force activities have an impact on overall household income and hence consumption (less savings and investments). This way, the consumption set of households might be a richer measure of household welfare than is currently reported in the literature.
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