4 CHAPTER 1
needs a rather long gestation period. For example, school education up to the completion of high school requires 12 years. This factor also implies that the expected improvement of equity and income distribution takes a rather long time.
Human capital investment needs time input, which implies opportunity cost at the individual level. Individuals need to indirectly pay the cost, forgo- ing earning opportunities that are available during the period they invest in human capital.
Returns to Education in South Africa
This section provides evidence on the returns to schooling in South African labor markets. Since I do not cover labor market issues in the main analysis, it is important to briefly discuss the functioning of labor markets and point out unique features of the markets in South Africa.
High unemployment is one key feature of the South African labor markets. Kingdon and Knight (2006) estimate that, in the period between 2002 and 2005, the unemployment rate was holding at 40 percent. Several studies provide evidence on returns to schooling in the South Afri- can labor markets using micro data (see Bhorat et al. 2001). Though racial gaps in returns to schooling have been narrowed, lower returns among Afri- cans are attributed to grade repetition and the lower quality of the schools available to them (for example, Anderson, Case, and Lam 2001). One interesting aspect of the data on schooling returns is their convexity. Education up to the high school level does not contribute to employment, but tertiary-level education significantly increases the probability of employment (Bhorat et al. 2001), thus creating convexity in the earning profile. This find- ing is similar to reports from the Philippines (Yamauchi 2005a). The effect of heterogeneity in school quality on labor market outcomes is important in South Africa. For example, Case and Yogo (1999) attempted to quantify the effect of school quality on labor market earnings in South Africa, merging data from population censuses and school censuses.6 On this point, it is worth noting that the matriculation pass rate at high school graduation is generally low in South Africa, having decreased from 70 percent in 2004 to 65 percent in 2007. This means that even if children officially finish high school, they are not qualified based on measures of educational accomplishment. The problem is particularly severe in rural areas where schools are located in predominantly African communities.
6 Case and Deaton (1999) examined the effect of school quality on learner performance.
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