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Stellenbosch Policy Brief No. 04/2011

The removal of racially biased labour market policies and regulations has been a logical move given the discriminatory nature of South Africa’s legislative past. Despite this official levelling of the playing field, the racial distribution of earnings remains unequal. A recent working paper based on household survey data looks beyond racial classification to identify other measurable factors affecting individuals’ earning potential. It confirms that education provides a competitive advantage given the skills shortage in the labour market, manifesting in positive and increasing wage returns on the quantity of education received. Educational attainment is critical, but more pertinently the study finds school quality to be important too, firstly because quality skills lead to additional earnings rewards, and secondly because completing Matric in a quality school increases the chances of entering tertiary education, allowing learners eventually to compete for higher paying jobs. Direct labour market interventions aimed at reducing racial income inequalities have their place, but they do not necessarily treat some of the root causes of the problem. In contrast, policies focused on quality schooling could have a direct, positive impact on the earnings distribution in the long run. In addition, they will complement an important concurrent policy objective aimed at narrowing the skills gap in the labour market to enhance the country’s economic growth potential.