Racial Differences in Returns to Education in

The main contribution of this paper is to examine the true function of education, whether it is productivity enhancing or whether it acts simply as a signalling device by estimating separate earnings functions for employees and self-employed, controlling for self-selection bias. As in previous studies, the results confirm the convexity in the structure of the rates of return to education in South Africa, where rates of return increase drastically for those with higher education. But, in contrast to previous studies, the findings suggest that returns to education for white and black males are very similar for the employees sample at all levels of education. However, when exploring the differences between black and white self-employed, returns to tertiary education are significantly higher for blacks and also when compared to employees. Also, for those in self-employment only tertiary education is found to be an important determinant of earnings. The results provide some evidence for the weak-screening hypothesis for higher education only. Also the results suggest that human capital accumulation at the tertiary level is a significant factor determining success for black entrepreneurs