Measuring human capital in South Africa across socioeconomic subgroups using a latent-variable approach

Abstract

AbstractHuman capital is a complex concept to measure given it is an unobserved latent construct. Education is a fundamental dimension of human capital and thus an education-based approach is the one most widely used. However, the international literature recommends a latent-variable approach to measuring human capital. This study thus aims to measure human capital in South Africa, a country experiencing extreme earnings and education inequalities, using a latent-variable approach and the National Income Dynamic Study (NIDS) dataset. The findings are that parental education is associated with the largest amount of variance in (latent) human capital, while the health indicator captures the least variance. Furthermore, the (latent) human capital variable provides a valuable measure to profile the distribution of human capital by socioeconomic subgroups.