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

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  • Doubell Chamberlain

    ()
    (Genesis Analytics)

  • Servaas van der Berg

    ()
    (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.

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File URL: http://www.ekon.sun.ac.za/wpapers/2002/wp022002/wp-02-2002.pdf
File Function: First version, 2002
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Bibliographic Info

Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 02/2002.

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Date of creation: 2002
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Handle: RePEc:sza:wpaper:wpapers2

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Keywords: earnings functions; labour market; discrimination; education; South Africa;

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References

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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. Servaas van der Berg & Louise Wood & Neil le Roux, 2002. "Differentiation in black education," Development Southern Africa, Taylor & Francis Journals, vol. 19(2), pages 289-306.
  3. Johnson, George E & Stafford, Frank P, 1996. "On the Rate of Return to Schooling Quality," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 686-91, November.
  4. Heckman, James & Layne-Farrar, Anne & Todd, Petra, 1996. "Human Capital Pricing Equations with an Application to Estimating the Effect of Schooling Quality on Earnings," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 562-610, November.
  5. Lee, Jong-Wha & Barro, Robert J, 2001. "Schooling Quality in a Cross-Section of Countries," Economica, London School of Economics and Political Science, vol. 68(272), pages 465-88, November.
  6. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  7. Murray Leibbrandt & Haroon Bhorat, 1999. "Correlates of Vulnerability in the South African Labour Market," Working Papers 99027, University of Cape Town, Development Policy Research Unit.
  8. Julian F. Hofmeyr & Robert E. B. Lucas, 1998. "The Rise in Union Wage Premia in South Africa," Boston University - Institute for Economic Development 83, Boston University, Institute for Economic Development.
  9. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  10. Mwabu, Germano & Schultz, T Paul, 1996. "Education Returns across Quantiles of the Wage Function: Alternative Explanations for Returns to Education by Race in South Africa," American Economic Review, American Economic Association, vol. 86(2), pages 335-39, May.
  11. Murray Leibbrandt & Haroon Bhorat, 1999. "Modelling Vulnerability and Low Earnings in the South African Labour Market," Working Papers 99032, University of Cape Town, Development Policy Research Unit.
  12. Behrman, Jere R & Birdsall, Nancy, 1983. "The Quality of Schooling: Quantity Alone is Misleading," American Economic Review, American Economic Association, vol. 73(5), pages 928-46, December.
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Cited by:
  1. Cally Ardington & Anne Case & Victoria Hosegood, 2008. "Labor supply responses to large social transfers: Longitudinal evidence from South Africa," Working Papers 1010, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  2. Nicola Branson & Julia Garlick & David Lam & Murray Leibbrandt, 2012. "Education and Inequality: The South African Case," SALDRU Working Papers 75, Southern Africa Labour and Development Research Unit, University of Cape Town.
  3. Bazillier, Remi, 2008. "Core Labor Standards and Development: Impact on Long-Term Income," World Development, Elsevier, vol. 36(1), pages 17-38, January.
  4. Haroon Bhorat & Sumayya Goga, 2012. "The Gender Wage Gap in the Post-apartheid South African Labour Market," Working Papers 12148, University of Cape Town, Development Policy Research Unit.
  5. Dieter von Fintel, 2006. "Earnings bracket obstacles in household surveys – How sharp are the tools in the shed?," Working Papers 08/2006, Stellenbosch University, Department of Economics.
  6. Martine Mariotti & Juergen Meinecke, 2009. "Nonparametric Bounds on Returns to Education in South Africa: Overcoming Ability and Selection Bias," ANU Working Papers in Economics and Econometrics 2009-510, Australian National University, College of Business and Economics, School of Economics.
  7. Maciej Szelewicki & Joanna Tyrowicz, 2009. "Labour Market Racial Discrimination in South Africa Revisited," Working Papers 2009-08, Faculty of Economic Sciences, University of Warsaw.

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