A Paradox of Progress: Rising Education and Unequal Labour Market Returns in Post-Apartheid South Africa

This working paper by Timothy Köhler for the COVID-Generation project analyses the evolution of the labour market returns to education and their drivers in post-apartheid South Africa using over 20 years of harmonized household survey microdata from 2001 to 2023, including credible earnings data not available in the public domain. He documents a significant increase in educational attainment, driven by the expansion of completed secondary and tertiary education, which resulted in a 40 percent reduction in educational attainment inequality. Despite this, the mean return to an additional year of education increased, suggesting that demand for higher-educated workers has outpaced supply. Increases in both educational attainment and returns drove wages upwards. While the former is dominant, the latter has grown in importance over time. Beyond the mean, the return to tertiary education has tripled, resulting in an increasingly convex returns structure. This return became particularly stronger for lower wage workers and primarily explains the group’s significant growth in real wages. The consequence was a reduction in overall wage inequality which, nevertheless, remains high. Finally, differential returns rather than differences in educational attainment have grown in importance in explaining inter-race wage inequality, which is suggestive of increasing discrimination but likely also reflects a growing importance of education quality differentials.