Modelling cognitive skills, ability and school quality to explain labour market earnings differentials
Stellenbosch Working Paper Series No. WP08/2011
Keywords: South Africa, education quality, wages, labour market, Oaxaca-Blinder decomposition, discrimination, economics of education
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Attempts to explain wage differences between race groups in South Africa are constrained by the fact that quality of education is known to differ greatly between groups, thus the unexplained portion of the wage gap may be much affected by such differences in education quality. Using a simulation model that utilises school-leaving (matric) examination results and educational attainment levels to generate estimates of education quality, we find that much of the wage gap can indeed be explained by differences in education quality. Thus the unexplained residual, often identified with labour market discrimination, usually greatly over-estimates such discrimination. This emphasises even more strongly the need for greater equity in educational outcomes, particularly in the often unobserved quality of education.