The effect of schooling on worker productivity: Evidence from a South African industry panel

Schooling is typically found to be highly correlated with individual earnings in African countries. However, African firm or sector level studies have failed to identify a similarly strong effect for average worker schooling levels on productivity. This has been interpreted as evidence that schooling does not increase productivity levels, but may also indicate that the schooling effect cannot be identified when using a schooling measure with limited variation. Using a novel South African industry-level dataset that spans a longer period than typical firm-level panels, this paper identifies a large and significant schooling effect. This result is highly robust across different estimators that allow for correlated industry effects, measurement error, heterogeneous production technologies and cross-sectional dependence.