The Relationship Between Unemployment and Earnings Inequality in South Africa
AbstractUnemployment 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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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0907.
Date of creation: Feb 2009
Date of revision:
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Web page: http://www.econ.cam.ac.uk/index.htm
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
This paper has been announced in the following NEP Reports:
- NEP-AFR-2009-03-14 (Africa)
- NEP-ALL-2009-03-14 (All new papers)
- NEP-DEV-2009-03-14 (Development)
- NEP-LAB-2009-03-14 (Labour Economics)
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