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Unemployment and wages in South Africa: a spatial approach

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  • Geeta Kingdon
  • John Knight

Abstract

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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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1999-12.

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Date of creation: 01 Apr 1999
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Handle: RePEc:oxf:wpaper:wps/1999-12

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  1. 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.
  2. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  3. 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.
  4. 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.
  5. 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.
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Cited by:
  1. Geeta Kingdon & John Knight, 2000. "Are Searching and Non-searching Unemployment Distinct States when Unemployment is High? The Case of South Africa," Economics Series Working Papers WPS/2000-02, University of Oxford, Department of Economics.
  2. Kingdon, Geeta Gandhi & Knight, John, 2004. "Unemployment in South Africa: The Nature of the Beast," World Development, Elsevier, Elsevier, vol. 32(3), pages 391-408, March.
  3. Katy Cornwell, 2006. "Language and Labour in South Africa: A new approach for a new South Africa," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 5/06, Monash University, Department of Econometrics and Business Statistics.
  4. Malakhov, Sergey, 2013. "Эффект Веблена, Предельная Полезность Денег И Денежная Иллюзия
    [Veblen effect, marginal utility of money, and money illusion]
    ," MPRA Paper 51014, University Library of Munich, Germany.
  5. Berk Özler, 2007. "Not Separate, Not Equal: Poverty and Inequality in Post-apartheid South Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 487-529.
  6. Frederick C.v.N. Fourie, 2011. "The South African unemployment debate: three worlds, three discourses?," SALDRU Working Papers, Southern Africa Labour and Development Research Unit, University of Cape Town 63, Southern Africa Labour and Development Research Unit, University of Cape Town.
  7. Phillippe G. Leite & Terry McKinley & Rafael Guerreiro Osório, 2006. "The Post-Apartheid Evolution of Earnings Inequality in South Africa, 1995-2004," Working Papers 32, International Policy Centre for Inclusive Growth.
  8. David Castro Lugo, 2006. "Curva salarial: una aplicación para el caso de México, 1993-2002," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 233-273.
  9. Kendall K. Schaefer, 2003. "Capacity Utilization, Income Distribution, and the Urban Informal Sector: An Open-Economy Model," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp35, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Kingdon, Geeta & Knight, John, 2006. "The measurement of unemployment when unemployment is high," Labour Economics, Elsevier, Elsevier, vol. 13(3), pages 291-315, June.

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