Racial earnings inequality in South Africa: An assessment of policy options

The model developed in this paper illustrates how grade repetition and unemployment shocks may culminate in a skill gap and consequently a wage gap across races. I calibrate the model to South African data in the early 1990s, and use this calibrated model to provide insight into the quantitative significance of various policies on the wage gap in the South African context. The policy experiments suggest that an enrolment subsidy or the provision of income support to the unemployed would bring long-run reductions in the African-white wage gap of 22% and 5%, respectively.