Earnings differentials and rates of return to education in Botswana

Abstract

Botswana experienced rapid growth since independence generated primarily from mineral exploitation. This enabled the country to pursue successfully human development as evidenced by human development indices. Despite this achievement, the country is challenged by a set of socio-economic problems that include: its inability to diversify the economy adequately from the diamond and beef, rising income inequalities, widespread poverty, and rising unemployment. A major challenge to the economy is that there is unlikely to be any major growth in government revenues in the future, and yet there will be a need to finance the growing expenditures. This implies that government will, in future, need to curtail its expenditures on various aspects of the economy. The funding of education is a major cost, which will have to be evaluated. The major aim of this thesis is to calculate private and social rates of return to education in Botswana. We also test the empirical usefulness of the human capital model in the Botswanaeconomy and finally, contribute knowledge to an understanding of the functioning of Botswana's labour market. The main tool of analysis is the Mincerian earnings function and the elaborate method. We use two data sets, one from a household income and expenditure survey and a supplementary survey conducted by the author. The major results are: (1) rates of return rise by level of education; (2) the highest distortion between private and social returns is at tertiary level and the lowest is for primary education; (3) education is not income equalizing; (4) women are paid less than men and yet they are on average more educated than men; (5) returns to education are higher in the public sector than in the private sector, supporting a screening role of education hypotheses; and (6) the empirical fitness or the human capital model is quite robust, even though the results show some role of screening. The policy implications include: there is room for private financing at the upper secondary and tertiarly levels of education; employment creation has to be pursued vigorously; and there is a need to address equity and gender inequality issues.