Higher education, employment, and economic growth: exploring the interactions

The purpose of this report is to interrogate 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 neoclassical theory of endogenous growth suggests that education has a profound impact on an economy’s growth trajectory that may result in a derived labour-demand appetite for skilled labour. This pattern, in turn, becomes crucial in defining and characterising the returns to households and their members on the basis of their human?capital attributes. Understanding the relationship and impact between education and growth at both levels is thus a vital lesson for making informed policy decisions about growth and welfare distribution. In this report, we investigate the link between education and economic growth in three ways. Firstly, this report examines the labour market trends, including occupational demand by education cohort. Secondly, we analyse the extent to which the educational attainments of labour cohorts affect the nature and trajectory of post-apartheid economic growth in South Africa by estimating Olley and Pakes’s two-stage regression on a modified Cobb- Douglas production education function. Thirdly, we attempt to understand the welfare gains by education cohort. We plot growth incidence curves (GICs) by educational cohort to identify the impact of economic growth on households with, and without, education. The results of this analysis show that the degree cohort contributes to economic growth and also shares in economic growth gains with steady employment demand. In contrast, other higher education institutions, including further education and training (FET) colleges and other institutions, do not productively contribute to economic growth. Further, FET graduates are almost as likely to be employed along with school leavers without higher education. In turn, welfare gains for this cohort, and particularly the poorer among this group, are marginal.National Research Foundation (South Africa