Institutional wage-setting, labour demand and labour supply: causal estimates from a South African pseudo-panel
Stellenbosch Working Paper Series No. WP07/2016Publication date: 2016
Author(s):
Unemployment in South Africa has been attributed to multiple causes. Wages have grown faster than productivity to reduce labour demand; demographic shifts have increased labour supply. This paper uses a district pseudo-panel, constructed from household surveys, to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. The goal is to assess whether hiring decisions are more sensitive to increases in wages of low paid workers than high paid workers, and whether wage growth prompts entry into the labour market. Each of these channels combine to result in the positive causal effect of wage growth on unemployment. Furthermore, the research investigates whether these effects are dominated by districts in which unionization rates are high, and where workers are employed by large firms. In so doing, we quantify the role that institutional wage-setting has in raising wages (which in turn contribute to unemployment). The results illustrate that wages of middle to highly paid workers – as opposed to low paid workers - lead to depressed local labour demand and higher local unemployment; these effects can be explained by cross-district unionization rates and the distribution of large firms. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.
JEL Classification:J31; J51; C21
Keywords:South Africa; wage-unemployment elasticity; pseudopanel; unions; firm structure
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27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
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Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
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