Each LMIP Briefing is an evidence-based contribution to informing the development of a skills planning mechanism for South Africa. Briefings showcase our cutting edge research and aim to highlight key trends and potential implications from LMIP research projects.

LMIP Briefing 14

The role of higher education institutions in predicting labour market outcomes

The LMIP has undertaken research on the role of higher education institutions in predicting labour market outcomes. The study offers empirical estimates of the association between the type of higher education institution attended (college or university) and the probability of employment and level of earnings among graduates in the South African labour market. It finds that an increase in years of schooling increases employment probability, and that there is a significant premium for individuals with higher education.

For South Africans with tertiary education (both male and female), the returns to education are high and have been increasing over time. In addition, they have better employment prospects. The study finds however, that women are disadvantaged in both employment and earnings, and that earnings vary by occupation and by both geographical area and province. Both race and home language play no role in influencing employment chances and earnings. Increased premiums at the top wage distribution favours Whites– a phenomenon that is likely to be driven by educational and institutional quality differentials than by race. There have been substantial efforts in the last two decades to close the quality gap in higher institutions, and new (both public and private) institutions have been established to meet the increased demand for higher education.

The study investigated whether there is an earnings premium linked to the type of institution attended (as defined by type of diploma offered by the institution, i.e. university or college) and whether the probability of employment differs by the institution attended. We find that the institution attended plays a significant role in the determination of both employment probability and earnings as is evident in premium differentials, with university graduates as the winners.

Using the three waves of the National Income Dynamic Study (NIDS) the study finds that attending a university increases an individual’s chances of employment by 7-10 percentage points relative to attending a college, and the premium to attending a university is two-fold. This higher return could be a reflection of increasing returns to university diplomas, or changes in the composition of graduates; that is, fewer graduates from universities than colleges, leading to higher wages for the former. Overall, in both employment and earning, in addition to a possible perception of higher productivity, university diplomas seem to give a positive signal to employers who, in return, offer higher wages to university graduates relative to college graduates.

Yet it is skills level, often measured by education level attained, which is a more important determinant of wage, relative to occupation. It is argued that skills inflation might be manifesting in increased selectivity in the employment of graduates, by criteria such as tertiary education qualification, and institution attended.

Our results indicate that universities are associated with a higher conditional probability of employment and massive returns to earnings. The latter is positive in that racial discrimination has been eroded, but it does suggest that FET colleges require significant improvements to ensure higher employment outcomes and an increase in the returns to earnings of their graduates.