Ebook Earnings Functions, Labour Market Discrimination And Quality Of Education In South Africa
The burgeoning literature on the earnings function in South Africa has paid much attention to evidence of labour market racial discrimination, conventionally measured as that part of earnings differentials between groups not accounted for by productive characteristics. Yet several articles in this literature admit, as Jacob Mincer (1974) also did in his groundbreaking work on human capital and earnings functions, that traditional measures of education (years of schooling completed) are an inaccurate measure of the human capital transferred by education.
This measurement deficiency is caused by differences in the content (e.g. subject choice and school curricula) quality of education provided. To accurately determine the contribution of education to an individual’s productive characteristics, it is necessary to find better measures of the human capital accumulated through schooling. This study takes a first step towards addressing this issue by, for the first time in South Africa4, incorporating measures of schooling quality into the analysis of earnings.
In the human capital model developed by Mincer (1974), earnings were explained as a function of acquired human capital which, in turn, was expressed as a function mainly of education (proxied by years of schooling completed) and experience. This model has since been expanded to include other factors that may influence earnings, such as gender and location. Already at the time of specifying the original model, Mincer acknowledged that differences in the quality of education received were a potential weakness and suggested that making provision for this in the model would greatly enhance its explanatory power (Mincer, 1974: 55).
Adjusting the earnings model to incorporate quality of education also affects the measurement of the proportion of the wage gap (i.e. the difference in average earnings of two groups) ascribed to labour market discrimination. For purpose of this study (and based on the work of Oaxaca (1973)), labour market discrimination will be defined as the component of the wage gap left unexplained by differences in measurable productive characteristics of the compared groups.
The main hypothesis is that taking account of the quality of education will reduce the component ascribed to labour market discrimination between whites and blacks, the two largest population groups in South Africa. This does not necessarily imply less discrimination, but presupposes that discrimination can affect the individual both in and before entering the labour market. In South Africa, racial differences in the quality of education received can better be considered as pre-labour market discrimination. Underlying the hypothesis is, therefore, the proposition that educational discrimination leads to disparities in the quality of education received which will lead to varying valuations of educational attainment in the labour market. This suggests that labour market discrimination may currently be overestimated. From a policy perspective, this supports the importance of attention to access to quality education.
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