Why has decreasing schooling inequality not led to decreasing earnings inequality in South Africa?

Abstract

Inequality in education has declined substantially in South Africa since the end of apartheid, with inequality in years of completed education declining by all standard measures of inequality. At the same time, inequality in earnings has not shown significant declines, and has increased by some measures. Given the strong positive relationship between earnings and years of education, why hasn’t the decline in education inequality led to declines in earnings inequality? This paper explores this puzzle from both a theoretical and empirical perspective. We analyse how earnings inequality is affected by changes in returns to schooling when returns increase at some levels of schooling and decrease at other levels. We show that changes in the distribution of education over the 1994-2019 period would have significantly reduced earnings inequality in and of themselves. This was offset by disequalizing changes in the earnings-education gradient, including an increase in relative earnings for those with post-secondary education and a decrease in relative earnings for those with incomplete secondary education. The net result is a combination of decreasing schooling inequality and persistently high earnings inequality.