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Coordination Failure and Employment in South Africa


  • David Fryer
  • Désiré Vencatachellum

    () (HEC Montreal, Université de Montréal)


South Africa lost more than 890,000 jobs, but saw an increase in the number of skilled workers from 1989 to 1999. We argue that this is the consequence of well-documented acute apartheid-era distortions which led to a current coordination failure where (i) firms are locked into a mostly skillintensive technology where they have very little demand for semi-skilled and unskilled labour, and (ii) there are too few semi-skilled and skilled blacks. It follows that the average level of blacks human capital is too low for firms to adopt a technology which makes intensive use of less skilled workers in the production process. A firm cannot unilaterally change technology because current skilled (mostly white) workers would lose and move to other firms. All of this points to a missing market for semi-skilled workers. Wealth redistribution and public investments in both the quantity and quality of education are shown to be Pareto-improving.

Suggested Citation

  • David Fryer & Désiré Vencatachellum, 2004. "Coordination Failure and Employment in South Africa," Working Papers 04086, University of Cape Town, Development Policy Research Unit.
  • Handle: RePEc:ctw:wpaper:04086

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    References listed on IDEAS

    1. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
    2. Charlotte Toit & Reneéa Koekemoer, 2003. "A Labour Model For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 71(1), pages 49-76, March.
    3. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    4. J D Lewis, 2002. "Promoting Growth and Employment in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 70(4), pages 338-358, March.
    5. Jeremy Wakeford, 2004. "The productivity-wage relationship in South Africa: an empirical investigation," Development Southern Africa, Taylor & Francis Journals, vol. 21(1), pages 109-132.
    6. L Edwards, 2001. "Globalisation And The Skills Bias Of Occupational Employment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 69(1), pages 40-71, March.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Patrick Duff & David Fryer, 2005. "Market Failure, Human Capital, and Job Search Dynamics in South Africa: The Case of Duncan Village," Working Papers 05098, University of Cape Town, Development Policy Research Unit.

    More about this item


    South Africa: Employment; Human Capital; Coordination Failure; Apartheid;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy


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