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The Determinants of Earnings Inequalities: Panel Data Evidence from South Africa

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Author Info

  • Kerr, Andrew

    ()
    (University of Cape Town)

  • Teal, Francis J.

    ()
    (University of Oxford)

Abstract

In this paper we analyse the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this we use the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average earnings differentials across different types of employment. Our results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium, but cannot explain the large premiums for public sector workers. We show that a public sector premium exists only for those moving into the public sector. The paper addresses the challenges of non-random attrition and measurement error bias that panel data bring. Our results show that emphasising a simple binary dichotomy between the formal and informal sector can be unhelpful in attempting to explore how the labour market functions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6534.

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Length: 36 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6534

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Keywords: formality; trade unions; public sector; earnings; South Africa;

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References

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  1. Paul Cichello & Gary Fields & Murray Leibbrandt, 2003. "Earnings and Employment Dynamics for Africans in Post-apartheid South Africa: A Panel Study of KwaZulu-Natal," Working Papers, University of Cape Town, Development Policy Research Unit 03077, University of Cape Town, Development Policy Research Unit.
  2. Jeremy R. Magruder, 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 138-66, July.
  3. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  4. Botelho, Fernando & Ponczek, Vladimir Pinheiro, 2007. "Segmentation in the brazilian labor market," Textos para discussão 231, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  5. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, Elsevier, vol. 50(7), pages 1817-1841, October.
  6. Haroon Bhorat & Carlene van der Westhuizen & Sumayya Goga, 2009. "Analysing Wage Formation in the South African Labour Market: The Role of Bargaining Councils," Working Papers, University of Cape Town, Development Policy Research Unit 09135, University of Cape Town, Development Policy Research Unit.
  7. James Heintz & Dorrit Posel, 2008. "Revisiting Informal Employment And Segmentation In The South African Labour Market," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 76(1), pages 26-44, 03.
  8. Paolo Falco & Andrew Kerr & Neil Rankin & Justin Sandefur & Francis Teal, 2010. "The Returns to formality and Informality in Urban Africa," CSAE Working Paper Series 2010-03, Centre for the Study of African Economies, University of Oxford.
  9. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 2(2), pages 165-187, June.
  10. Julian May & Jorge Aguero & Michael Carter & Ian Tim�us, 2007. "The KwaZulu-Natal Income Dynamics Study (KIDS) third wave: methods, first findings and an agenda for future research," Development Southern Africa, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(5), pages 629-648.
  11. Günther, Isabel & Launov, Andrey, 2012. "Informal employment in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 97(1), pages 88-98.
  12. Moll, Peter, 1996. "Compulsory Centralization of Collective Bargaining in South Africa," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 326-29, May.
  13. El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2007. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," IZA Discussion Papers 3151, Institute for the Study of Labor (IZA).
  14. Malcolm Keswell & Laura Poswell, 2004. "Returns To Education In South Africa: A Retrospective Sensitivity Analysis Of The Available Evidence," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 72(4), pages 834-860, 09.
  15. James J. Heckman & V. Joseph Hotz, 1986. "An Investigation of the Labor Market Earnings of Panamanian Males Evaluating the Sources of Inequality," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 507-542.
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Cited by:
  1. Amar Hamoudi & Duncan Thomas, 2014. "Endogenous Co-residence and Program Incidence: South Africa’s Old Age Pension," NBER Working Papers 19929, National Bureau of Economic Research, Inc.
  2. repec:ldr:wpaper:92 is not listed on IDEAS
  3. Andrew Kerr & Martin Wittenberg & Jairo Arrow, 2013. "Job Creation and Destruction in South Africa," SALDRU Working Papers, Southern Africa Labour and Development Research Unit, University of Cape Town 092, Southern Africa Labour and Development Research Unit, University of Cape Town.

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