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The Relationship Between Unemployment and Earnings Inequality in South Africa

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Author Info
Tregenna, F.

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Abstract

Unemployment and earnings inequality have moved closely together in South Africa in recent years, suggesting that there may not be a trade-off between them as the literature generally suggests. This article explores the relationship between unemployment and earnings inequality in South Africa, specifically investigating the extent to which changes in unemployment can account for changes in earnings inequality. Decomposing overall income inequality by factor source shows the overwhelming importance of earnings in income inequality more generally. Decomposing earnings inequality by employment status reveals the centrality of unemployment in accounting for the level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is found to be of lesser importance in explaining earnings inequality, as is wage dispersion within each of these categories. The findings point to the critical importance of reducing unemployment in South Africa if the extremely high levels of inequality are to be addressed.

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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0907.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0907.

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Date of creation: Feb 2009
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Handle: RePEc:cam:camdae:0907

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Web page: http://www.econ.cam.ac.uk/index.htm

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Related research
Keywords: Inequality; earnings distribution; unemployment; labour market; South Africa.;

Find related papers by JEL classification:
D30 - Microeconomics - - Distribution - - - General
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Martín González & Alicia Menendez, 2000. "The Effect of Unemployment on Labor Earnings Inequality: Argentina in the Nineties," Working Papers 216, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies.. [Downloadable!]
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    Other versions:
  3. Ayala, Luis & Martinez, Rosa & Ruiz-Huerta, Jesus, 2002. "Institutional Determinants of the Unemployment-Earnings Inequality Trade-Off," Applied Economics, Taylor and Francis Journals, vol. 34(2), pages 179-95, January. [Downloadable!] (restricted)
  4. Johannes G. Hoogeveen & Berk Özler, 2005. "Not Separate, Not Equal: Poverty and Inequality in Post-Apartheid South Africa," William Davidson Institute Working Papers Series wp739, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  5. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December. [Downloadable!] (restricted)
  6. Murray Leibbrandt & Ingrid Woolard, 2001. "The labour market and household income inequality in South Africa: existing evidence and new panel data," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(6), pages 671-689. [Downloadable!]
  7. Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, vol. 105(429), pages 421-30, March. [Downloadable!] (restricted)
  8. Murray Leibbrandt & Laura Poswell & Pranushka Naidoo & Matthew Welch & Ingrid Woolard, 2005. "Measuring Recent Changes in South African Inequality and Poverty using 1996 and 2001 Census Data," Working Papers 9629, University of Cape Town, Development Policy Research Unit. [Downloadable!]
  9. Leibbrandt, M.V. & Woolard, C.D. & Woolard, I.D., 1996. "The Contribution of Income Components to Income Inequality in South Africa: A Decomposable Gini Analysis," Papers 125, World Bank - Living Standards Measurement.
    Other versions:
  10. Gonzalvez, M. & Menendez, A., 2000. "The Effect of Unemployment on Labor Earnings Inequality: Argentina in the Nineties," Papers 193, Princeton, Woodrow Wilson School - Development Studies.
  11. Bjorklund, Anders, 1991. " Unemployment and Income Distribution: Time-Series Evidence from Sweden," Scandinavian Journal of Economics, Blackwell Publishing, vol. 93(3), pages 457-65.
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  13. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January. [Downloadable!] (restricted)
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