Bhorat H, Cassim A, Tseng D, (2014) 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 highereducation
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.