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The Impact of Privatisation and Regulatory Reform on Wage Premia in State-Owned Enterprises in South Africa

Listed author(s):
  • Damian Hattingh
  • James Hodge
  • Sandrine Rospabé


    (Development Policy Research Unit, University of Cape Town)

Registered author(s):

    Whilst much has been said about the employment effects of the privatisation of state-owned enterprises in South Africa, the debate has largely overlooked the impact of these events on the wage levels of those workers that retain their jobs in the restructuring process. This paper estimates earnings functions for workers in the South African economy to determine the impact of these changes. The results suggest that those workers that do retain their jobs in the restructuring process will be better off initially. This is because the state-owned firm will shift to become a partially private firm that operates in a highly regulated industry structure with limited competition. This enables the firm to earn abnormal profits and unionised labour is able to share in some of these profits. However, uncertainty at the individual level over whether they will be one of the lucky workers to retain their post will ensure that most workers will oppose any restructuring. The paper also demonstrates that any further liberalisation of the previously state-owned sector to introduce greater competition will make those workers worse off as their premium is eroded along with the abnormal profits. This applies as much to union members and non-union members. The result is that workers can be expected to oppose any further restructuring of these former state-owned firms after they have been initially reformed.

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    File Function: First version, 2003
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    Paper provided by University of Cape Town, Development Policy Research Unit in its series Working Papers with number 03078.

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    Length: 20 pages
    Date of creation: Jul 2003
    Publication status: Published in Working Paper Series by the Development Policy Research Unit, July 2003, pages 1-20
    Handle: RePEc:ctw:wpaper:03078
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    1. Rose, Nancy L, 1987. "Labor Rent Sharing and Regulation: Evidence from the Trucking Industry," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1146-1178, December.
    2. Kristin F. Butcher & Cecilia Elena Rouse, 2001. "Wage Effects of Unions and Industrial Councils in South Africa," ILR Review, Cornell University, ILR School, vol. 54(2), pages 349-374, January.
    3. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
    4. Dorothe Bonjour, 2000. "Are civil servants paid too much? - A distributional analysis of the public-private wage gap in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 136(IV), pages 557-578, December.
    5. Paul Collier & Jan Willem Gunning, 1999. "Why Has Africa Grown Slowly?," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 3-22, Summer.
    6. Francis Teal, 1994. "The size and scources of economic rents in a developing country manufacturing labour market," Economics Series Working Papers WPS/1995-06, University of Oxford, Department of Economics.
    7. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    8. James M. Poterba & Kim S. Rueben, 1998. "Fiscal Institutions and Public Sector Labor Markets," NBER Working Papers 6659, National Bureau of Economic Research, Inc.
    9. Haroon Bhorat, 2000. "Wage premia and wage differentials in the South African labour market," Working Papers 00043, University of Cape Town, Development Policy Research Unit.
    10. Sandrine Rospabé, 2001. "Making Racial Wage Relations Fair in South Africa: A Focus on the Role of Trade Unions," Working Papers 01048, University of Cape Town, Development Policy Research Unit.
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