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Estimating the Causal Effect of Enforcement on Minimum Wage Compliance : The Case of South Africa

Author

Listed:
  • Haroon Bhorat
  • Ravi Kanbur
  • Natasha Mayet

    (Development Policy Research Unit
    Director and Professor)

Abstract

This paper attempts to estimate the causal effect of government enforcement on compliance with minimum wages in South Africa, a country where considerable non-compliance exists. The number of labour inspectors per capita is used as a proxy for enforcement, whilst non-compliance is measured using an index of violation that measures both the proportion of individuals violated, as well as the average depth of individual violation. Due to the potential simultaneity between enforcement and compliance, the number of labour inspectors is instrumented by the number of non-inspectors. The results suggest that there are a variety of factors impacting on violation, including firm-level, sectoral and spatial characteristics. One of the key determinants of violation is found to be the local unemployment rate. However, the number of labour inspectors is found to be insignificant in determining non-compliance.

Suggested Citation

  • Haroon Bhorat & Ravi Kanbur & Natasha Mayet, 2011. "Estimating the Causal Effect of Enforcement on Minimum Wage Compliance : The Case of South Africa," Working Papers 11145, University of Cape Town, Development Policy Research Unit.
    • Handle: RePEc:ctw:wpaper:11145
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    File URL: http://hdl.handle.net/11427/7291
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    References listed on IDEAS

    as
    1. Lucas Ronconi, 2010. "Enforcement and Compliance with Labor Regulations in Argentina," ILR Review, Cornell University, ILR School, vol. 63(4), pages 719-736, July.
    2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    3. Haroon BHORAT & Ravi KANBUR & Natasha MAYET, 2012. "Minimum wage violation in South Africa," International Labour Review, International Labour Organization, vol. 151(3), pages 277-287, September.
    4. Levitt, Steven D, 1997. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime," American Economic Review, American Economic Association, vol. 87(3), pages 270-290, June.
    5. Lucas Ronconi, 2012. "Globalization, Domestic Institutions, and Enforcement of Labor Law: Evidence from Latin America," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(1), pages 89-105, January.
    6. Steven D. Levitt, 2002. "Using Electoral Cycles in Police Hiring to Estimate the Effects of Police on Crime: Reply," American Economic Review, American Economic Association, vol. 92(4), pages 1244-1250, September.
    7. William Maloney & Jairo Mendez, 2004. "Measuring the Impact of Minimum Wages. Evidence from Latin America," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 109-130, National Bureau of Economic Research, Inc.
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    • A1 - General Economics and Teaching - - General Economics

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