Earnings functions, labour market discrimination and quality of education in South Africa

Stellenbosch Working Paper Series No. WP02/2002
 
Publication date: 2002
 
Author(s):
[protected email address] (Genesis Analytics)
[protected email address] (Department of Economics, Stellenbosch University)
 
Abstract:

Education is a key determinant of earnings, as several South African studies have confirmed. Years of schooling completed, however, provides an imperfect approximation of the effective level of education achieved, mainly due to variations in the quality of education received. This study addresses this issue by, for the first time in South Africa, incorporating quality of education in the modelling of earnings. Differences in quality of education are viewed as a form of pre-labour market discrimination. By decomposing the wage gap before and after controlling for educational quality, more accurate estimates of the true levels of labour market discrimination are obtained. The main hypothesis tested is that controlling for quality will reduce the component of the wage gap ascribed to labour market discrimination. The results show a systematic decrease in the labour market discrimination component with increased adjustments for quality of education. Almost half of the previous labour market discrimination can be explained by differences in quality, yet the proportion of racial wage differentials ascribed to labour market discrimination is still found to be significant. The clear implication is that current estimates of labour market discrimination are exaggerated and a more careful analysis of earnings is required to re-assess the levels of discrimination in the South African labour market.

 
JEL Classification:

I2, J15, J3

Keywords:

earnings functions, labour market, discrimination, education, South Africa

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BER Weekly

13 September 2021
It was a data-heavy week in SA, with the 2021Q2 real GDP data indicating that the economy had better-than-expected recovery momentum in the first half of the year. While growth remained solid in the second quarter, both the survey and actual data released last week revealed the significant impact that the range of shocks at the start of the third quarter...

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