Year: 2002
Working paper number: 022
Author: Keswell, Malcolm
Unit: SSU

The impact of education on the process of development relies crucially on what can be assumed about the way it is rewarded. Standard human capital theory assumes diminishing marginal returns to education. The purpose of this paper is to examine the empirical relevance of this assumption. We find that the standard approach to estimating this relation is not well supported by virtually all of the available evidence for South Africa. Indeed, the marginal rate of return to education is extremely high for tertiary levels of education and small (approaching zero) for lower levels of education. If human capital accumulation is an important determinant of wealth accumulation, this implies that educational reforms in the form of small policy interventions will not have any significant impact on the distribution of income and wealth, as long as key features of labour markets that govern the manner in which education is rewarded, remains unaltered.

Publication file: wp22.pdf