A person's human capital has an external effect on the productivity of others. In
South Africa, where apartheid led to important differences in the average human capital
of each racial group, these externalities may differ across and within races. The impact
of human capital externalities on wages, and vertical labor mobility, are examined using
the 1993 South Africa Project for Statistics on Living Standards and Development. We
estimate a wage equation which accounts for both individual and aggregate human
capital and controls for parental assets. We find that: (1) the race-specific human capital
of Blacks and Colored affects same-race wages positively, (2) Blacks’ aggregate human
capital has a positive impact on white workers' wages, (3) Whites’ human capital does
not affect black workers' wages, and (4) Blacks and Colored have the lowest vertical
labor mobility . Our estimates indicate that policies which curtailed the education of
Blacks had the unexpected effect of depressing Whites’ wages. Similarly, any negative
shock which depletes the human capital of Blacks is likely to have adverse effects on the
wages of both black and white workers.