What you study matters – for you and the economy

On the skills premium, Elite Overproduction Hypothesis and the lack of computer science qualifications in South Africa

If you were a carpenter in the year 1900 and lived in Africa, you would have earned about four times as much as an unskilled worker. Had you lived in Japan, you would have earned 2.5 times as much. In Britain at the same time, you would have earned only 50% more or 1.5 times as much as an unskilled worker. In short: the skill premium in Africa was much bigger than it was in Europe at the time.

Fast forward a century. By 2000, the skill premium for a carpenter in Britain was about 25%. In Japan, it was around 30%. And in Africa, around 100%.

There are two important lessons we can take from these figures recently published by the economic historians Ewout Frankema and Marlous van Waijenburg. The first is that the skill premium of skilled versus unskilled wages has declined dramatically all over the world, particularly in the developing world. This is largely due to the roll-out of mass education – schools and, to some extent, universities – across the African continent, first during the colonial period and then during the first few decades of independence. More schooling allowed many Africans upward mobility, expanding the number of skilled workers relative to unskilled workers and lowering the wage premium for skilled work.

The second lesson to take from these figures is that skilled workers still earn relatively more in Africa than they do anywhere else in the world. In fact, a carpenter in Africa today earns about the same wage premium relative to an unskilled worker as a carpenter in Britain in 1250! In short: there is still much scope to reduce these skilled wage premiums.

It is therefore no surprise that in South Africa and elsewhere on the continent, tertiary qualifications are in high demand. This is reflected in the growth of university degrees in the last two decades. In that time, the number of qualifications awarded at all tertiary institutions in South Africa increased by 4.5% per year: from around 70 000 per year to more than 230 000. Universities had to find ways to accommodate this surge in demand without a proportionate increase in funding from the government. This tension between the demand for access and the availability (and affordability) of university places ultimately spilled over in 2015 in the Fees Must Fall protests. In his last act as president, former president Jacob Zuma offered free education for those below a certain income threshold. Although it provided a salve to the open wounds of exclusion, it never offered a sustainable solution to expand tertiary education.

It may have also created expectations that would not be met in the labour market. In late August, the American economist Noah Smith wrote about the Elite Overproduction Hypothesis, the idea that society may produce too many highly qualified people for the number of jobs available. First described by the scientist Peter Turchin, the Elite Overproduction Hypothesis seems to explain part of what happened in America in the 2000s: a large number of Humanities students graduated with great expectations that they would immediately get a well-paying job and join the elite. But because of shifts in the labour market – more demand for computer scientists and less for English literature scholars, for example – and the global financial crisis which ended the period of high economic growth, many of these bright graduates were left frustrated. They vented their frustration in politics, pushing for more leftist/progressive policies. The divergence between Democratic and Republic politics is one consequence.

To what extent this is true in South Africa is not clear, but there is at least some evidence that graduates are finding it harder to get a job in South Africa. The narrow graduate unemployment rate (for those with university degrees) declined from around 8% in 2000 to just above 2% in 2007, the year that South Africa experienced GDP growth of above 5%. By 2015, however, this graduate unemployment rate had increased to above 6%. It is likely to be much higher today.

In America, the so-called overproduction of certain degrees has caused a colossal change in student preferences: by the 2010s, American students began to shift into degrees for which there were better job market prospects. As the digital historian Benjamin Schmidt has shown, degrees at American universities in Religion, History, and English have fallen by half since the late 2000s. Yes, that is not a typo: the number of students graduating in those subjects has declined by 50% or more.

Where have those students gone? Science and, in particular, computer science. By 2022, there were almost as many computer science graduates in America as all the humanities combined.

And what about South Africa? The figure shows the increase in tertiary qualifications between 2000 and 2020. What is clear is that the shares of the various types of qualifications have remained largely flat. There is certainly no great reversal in the humanities. If one investigates the raw data, there are only two broad categories that have increased substantially: Business and Economics, from around 21% of all qualifications to 29%, and Engineering, from around 4% to 6.3%. Surprisingly, given the centrality of computing in almost all industries, Computer and information studies have remained flat. The biggest declines have been in the humanities (things like Languages and Philosophy), from 33% to 25%. Yet these declines are certainly not as rapid and sizeable compared to what happened in America.

Does this mean that we are still producing too many graduates that are unlikely to find work in today’s labour market? That is certainly one interpretation. Both the government and students (and their families and broader communities) invest large sums of money in graduating successfully, only to realise that their skills are of little value in the labour market. The empty promises of upward mobility and failure to achieve a better life that they had dreamed about may push them, just like their American peers, to vent their frustration in politics.

But it is also worth keeping in mind that the skills premium in South Africa and Africa remains large: there is still a large difference between the pay of a skilled worker – even an art historian! – and an unskilled worker. Successfully completing a tertiary qualification is still an important step toward a higher-paid job, even if that job won’t necessarily catapult them into the elite.

What can students do to improve their chances of securing a well-paying job after university? It helps to speak to others who have recently completed their degrees. Ask them: Could they find work easily? What skills do their jobs require? What subjects would they recommend? What do they earn? This not only helps students make better-informed study choices but also helps to manage their expectations for life after university.

A university degree in South Africa is still the best way to build a better life. But it is no panacea to riches. Students (and their parents) must choose wisely.

An edited version of this article was first published on News24. Photo by Austin Ramsey on Unsplash.