Higher education, employment and economic growth: Exploring the interactions

ABSTRACT

This article interrogates the impact and nature of South Africa’s post-apartheid economic growth performance through the lens of human capital investment with a particular emphasis on higher education. The South African economy has been characterised by a skills-biased trajectory, ensuring jobs for the better educated. By differentiating between tertiary and vocational training, we find that further education and training (FET) graduates are almost as likely to be employed as school leavers without higher education. We analyse the extent to which the educational attainments of labour affect the nature and trajectory of economic growth in South Africa, by estimating Olley and Pakes’ two-stage regression on a modified Cobb–Douglas production function. The results indicate that the degree cohort contributes to economic growth whilst other higher education institutions, including FET colleges, do not productively contribute to economic growth.

KEYWORDS:

• Cobb–Douglas production function
• growth
• higher education
• human capital
• labour
• productivity
• vocational training

JEL CLASSIFICATION CODES:

• I23
• I25
• I26
• J01
• J24

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹FET colleges offer a National Certificate Vocational (NCV), a National Diploma, and a number of other specialised education and training programmes. The NCV programme can take up to three years and is offered in a number of fields, including the built environment, tourism, education and development, mechanics, safety in society, and hospitality. The NCV was designed to replace the National Technical Certificate and has a Grade 12 or Grade 11 entry requirement, but may accept Grade 9 or Grade 10 in exceptional cases. The National Diploma can be taken in certain Grade 12 subjects, small business management and financial management, which would often be taken by someone who has not obtained a matric qualification. For ease of reference, we term both certificate and diploma under ‘certificate’ in the analysis.

²One possible explanation for the rapid increase in the demand for tertiary educated workers is the highly unionised labour market which provides firms with the incentive to invest in stable, skill-intensive capital. However, proving this would require further evidence beyond the scope of this research.

³The sum of two parameters (α and δ) is the returns to scale of the inputs in the production process and could be seen as the productivity associated with the factor inputs. If the sum of the two parameters is greater than one, it would imply increasing returns to scale; if the sum equals one, it would indicate constant returns to scale; and if the sum is less than one, it would point to decreasing returns to scale.

⁴The results estimated by Arora (2005) also find increasing returns to scale using inputs of labour (0.8) and capital (0.7) during the 1980–2003 period.