Here Has All the Education Gone! The Freefall of Skill Premiums in Sub-Saharan Africa and Southern Asia in the Long 20th Century

The recent acceleration of economic growth in Sub-Saharan Africa has fuelled speculations about the possibilities to eradicate African poverty in the 21^st century. In previous work, we argued that the African poverty debate needs greater input from historians, as economic transition processes ultimately evolve over long periods of time and within changing historical contexts. We showed that the short time-horizons that dominate social science approaches to development have not only led to widespread misconceptions about Africa’s historical growth record, but may also miss some of the ‘deeper’ historical changes that are taking place in today’s rapidly growing economies.

This paper further supports our call for longer-term perspectives on development. Previous development studies were unable to find a positive effect of educational capital accumulation on labor productivity growth in the developing world (c. 1960-1990), leading Pritchett (2001) to wonder where all the education had gone. We explore the economic implications of the 20^th century ‘schooling revolution’ from a different angle, by looking at the long-term development of the relative price structure of labor skills in two of the world’s poorest regions, i.e. sub-Saharan Africa and Southern Asia. We exploit a variety of historical and contemporary sources on wages and salaries of various occupational categories of workers to demonstrate that the rapid rise in attainment levels propelled a dramatic ‘free fall’ of income premiums for traditional artisans, white-collar workers, and those skills required to absorb new technology regimes. Comparing our findings to the evolution of skill-premiums of early industrializers reveals a much more rapid decline in the developing world. Despite the fact that this is not a sufficient condition for labor productivity growth in itself, we argue that this revolutionary transformation of the cost structure of skills sheds a more optimistic light on the potential for catch-up growth in the 21^st century.