A large amount of recent evidence finds a negative relationship between local unemployment and wages in OECD countries, a relationship christened a 'wage curve' This contradicts the conventional model of the labour market in which high unemployment regions have higher wages to compensate for search and other costs. This paper discovers a wage curve in South Africa, a country with several times the typical unemployment rate of OECD countries. The wage curve elasticity in South Africa is similar to that in OECD countries (-0.1) but persists over a much larger range of unemployment rates, implying that unemployment can have a large impact on wages in South Africa. However, this wage flexibility does not extend to union wages which are well insulated from local unemployment conditions. The results here also shed light on the segmentation of the labour market based on labour immobility and on the debate about the appropriate definition of unemployment in South Africa.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
99-12.
Length: 31 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:oxesaf:99-12
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Find related papers by JEL classification: J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
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