The Effect of Education on Earnings and Employment in the Informal Sector in South Africa
This dissertation analyzes the effects of schooling on earnings and employment in the informal private sector, compared with those in the public and formal private sectors, in South Africa. The estimations are conducted by race and gender as well to examine the difference between various subgroups. The research also examines the heterogeneity in returns to schooling. The returns to schooling are estimated using two-stage least squares with multinomial two-step selection corrections to control for both endogeneity of schooling and sector sample selection bias. Quantile regression and piecewise linear spline function methods were applied to deal with the heterogeneity of the returns to schooling. Moreover, the Blinder-Oaxaca decomposition method was conducted to explore the contribution of returns to schooling and educational endowments to wage differentials between sectors. To analyze the effects of schooling on the probability of employment in different sectors of the economy, multinomial logit and probit models were estimated. The instrumental variable probit model was also used to control for the endogeneity of schooling. Even after controlling for both endogeneity of schooling and sample selection bias, a significant difference was found in returns to schooling between the formal and informal private sectors. Returns to schooling in the formal private sector are higher than those in the informal private sector in general. These findings apply across race and gender, except for Whites and Asians whose sample size in the informal sector was too small. They were robust even after controlling for district, industry, and occupation, and using different definitions of the informal sector. Therefore, the dissertation concludes that formal private and informal private labor markets are segmented in terms of returns to schooling in South Africa. The study also showed a positive effect of schooling on employment in the public and formal private sectors versus employment in the informal private sector. The effect of schooling on employment in the formal private sector - when compared to that in the informal sector - was much stronger for females than males, except for Whites and Asians. The findings were robust after controlling for district and using different definitions of the informal sector.
Economics, Education and state, School management and organization
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