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How Flexible are Wages in Response to Local Unemployment in South Africa?

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  • Geeta Kingdon
  • John Knight

Abstract

It is commonly claimed that the South African labor market is unusually inflexible owing to the strength of the unions and the system of centralized collective bargaining. One aspect of labor market inflexibility concerns the responsiveness of wages to local unemployment. Examining this spatial relationship, we find that the elasticity of wages to local unemployment rates in South Africa is -0.1, similar to that found in other countries, including the US and the UK. This is striking because South Africa has a national unemployment rate of over 30%. We find that the wage curve elasticity persists over a much wider range of unemployment rates than in OECD countries, implying that unemployment in South Africa can have a large impact on wages.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number GPRG-WPS-015.

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Date of creation: 01 Apr 2005
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Handle: RePEc:oxf:wpaper:gprg-wps-015

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Keywords: Wages; Unemployment; Wage Curve; South Africa;

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References

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  1. Blanchflower, D-G, 1997. "Changes Over Time in Union Relative Wage Effects in Great Britain and the United States," Papers, Centre for Economic Performance & Institute of Economics 15, Centre for Economic Performance & Institute of Economics.
  2. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  3. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
  4. J. B. Knight, 1982. "The Nature of Unemployment in South Africa," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 50(1), pages 1-7, 03.
  5. Carruth, Alan & Oswald, Andrew, 1987. "Wage Inflexibility in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 59-78, February.
  6. Pencavel, John, 1994. "British Unemployment: Letter from America," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 621-32, May.
  7. Blanchflower, David G & Oswald, Andrew J, 1993. " Testing for a U-Shaped Wage Curve. A Response," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 95(2), pages 245-48.
  8. Moll, Peter G, 1996. "The Collapse of Primary Schooling Returns in South Africa 1960-90," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 185-209, February.
  9. van der Meulen Rodgers, Yana & Nataraj, Sita, 1999. "Labor Market Flexibility in East Asia: Lessons from Taiwan," Economic Development and Cultural Change, University of Chicago Press, vol. 48(1), pages 51-69, October.
  10. Anne Case & Angus Deaton, 1999. "School Inputs And Educational Outcomes In South Africa," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 1047-1084, August.
  11. 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.
  12. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 60(1), pages 126-42, March.
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Cited by:
  1. Freeman, Richard B., 2010. "Labor Regulations, Unions, and Social Protection in Developing Countries," Handbook of Development Economics, Elsevier, Elsevier.
  2. Fedderke, Johannes W. & Hill, Andrew J., 2011. "Industry structure and labor market flexibility in the South African manufacturing sector: A time series and panel data approach," Economic Modelling, Elsevier, Elsevier, vol. 28(3), pages 1291-1302, May.
  3. Blanchflower, David G. & Oswald, Andrew J., 2006. "The Wage Curve: An Entry Written for the New Palgrave, 2nd Edition," IZA Discussion Papers 2138, Institute for the Study of Labor (IZA).
  4. John Knight, 2007. "China, South Africa and the Lewis Model," Economics Series Working Papers WPS/2007-12, University of Oxford, Department of Economics.
  5. Chitiga, Margaret & Fofana, Ismael & Mabugu, Ramos, 2011. "A multiregion general equilibrium analysis of fiscal consolidation in South Africa:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1110, International Food Policy Research Institute (IFPRI).
  6. Nicholas Nsowah-Nuamah & Francis Teal & Moses Awoonor-Williams, 2010. "Jobs, Skills and Incomes in Ghana: How was poverty halved?," CSAE Working Paper Series 2010-01, Centre for the Study of African Economies, University of Oxford.
  7. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier, Elsevier.
  8. PF Blaauw & WF Krugell, 2012. "Micro-evidence on day labourers and the thickness of labour markets in South Africa," Working Papers 282, Economic Research Southern Africa.
  9. Richard B. Freeman, 2009. "Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions?," NBER Working Papers 14789, National Bureau of Economic Research, Inc.
  10. Johannes Fedderke, 2012. "The Cost of Rigidity: The Case of the South African Labor Market," Comparative Economic Studies, Palgrave Macmillan, vol. 54(4), pages 809-842, December.
  11. Francis Teal & Nicholas Nsowah-Nuamah and Moses Awoonor-Williams, 2010. "Jobs, Skills and Incomes in Ghana: How was poverty halved?," Economics Series Working Papers CSAE WPS/2010-01, University of Oxford, Department of Economics.

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