There is an established body of research that emphasises the strong relationship between good, quality, higher education and improved economic and welfare returns. The research summarised here offers empirical estimates of the association between the type of higher education institution attended (college or university) and the probability of employment and levels of earnings among graduates, for the South African labour market.

Using data from three waves of the National Income Dynamics Study (NIDS), we investigated whether there is an earnings premium linked to the type of institution attended, and whether the probability of employment differs by the institution attended.To do this, we looked at the earnings and employment returns of university degrees compared to Technical and Vocational Education and Training (TVET) college diplomas.

The study found, that the level of education attained (i.e. the skills level) is an important determinant of wage relative to occupation. The effect of this is that employers are increasingly selective in their employment practices, displaying a preference for university graduates. This has led to skills inflation. Criteria for such selectivity have included tertiary education qualification and the institution attended.

While the returns to education and employment are high for males and females, further disaggregation reveals demographic nuances. Women are disadvantaged in both employment and earnings; also earnings vary by occupation and by both geographical area and province. Statistically, race and home language alone play no role in influencing employment prospects and earnings. However, they are important in shaping education and employment access premium linked to the type of institution attended, and whether the probability of employment differs by the institution attended. To do this, we looked at the earnings and employment returns of university degrees compared to TVET college diplomas.

Our research found that attending a university, relative to a college, increases an individual’s chances of employment by 7–10%, and the earnings premium to attending a university is two-fold. The study also found that the higher return could be a reflection of increasing returns to university degrees, or be due to changes in the composition of graduates – there are fewer graduates from universities than colleges, leading to higher wages for the former.

Increased premiums at the top of the wage distribution favours white South Africans, but this phenomenon is likely to be driven by educational and institutional quality differentials, rather than by race.

There have been substantial efforts in the last two decades to close the quality gap in higher education institutions, and new (both public and private) institutions have been established to meet the increased demand for higher education. The results indicate that universities are associated with a higher conditional probability of employment and significant returns to earnings.

*This piece is summarised from Report 23 of the Labour Market Intelligence Partnership: “The Role of Post-school Education and Training Institutions in Predicting Labour Market Outcomes”.

Authors: Haroon Bhorat, Aalia Cassim and David Tseng

Development Policy Research Unit, University of Cape Town