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The Determinants of Earnings Inequalities: Panel Data Evidence from South Africa

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  • Kerr, Andrew

    (University of Cape Town)

  • Teal, Francis J.

    (University of Oxford)

Abstract

In this paper we analyse the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this we use the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average earnings differentials across different types of employment. Our results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium, but cannot explain the large premiums for public sector workers. We show that a public sector premium exists only for those moving into the public sector. The paper addresses the challenges of non-random attrition and measurement error bias that panel data bring. Our results show that emphasising a simple binary dichotomy between the formal and informal sector can be unhelpful in attempting to explore how the labour market functions.

Suggested Citation

  • Kerr, Andrew & Teal, Francis J., 2012. "The Determinants of Earnings Inequalities: Panel Data Evidence from South Africa," IZA Discussion Papers 6534, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6534
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    Cited by:

    1. Mari Kangasniemi & Jukka Pirttilä, 2013. "Trade unions in the south and co-operation between unions in the South and in the North: A survey of the economics literature," Working Papers 285, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    2. repec:ldr:wpaper:92 is not listed on IDEAS
    3. Andrew Kerr & Martin Wittenberg & Jairo Arrow, 2014. "Job Creation and Destruction in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(1), pages 1-18, March.
    4. Magejo, Prudence & Benhura, Miracle, 2015. "A Detailed Decomposition Analysis of the Public-Private Sector Wage Gap in South Africa," IZA Discussion Papers 9271, Institute of Labor Economics (IZA).
    5. Serena Merrino, 2020. "Measuring labour earnings inequality in post-apartheid South Africa," WIDER Working Paper Series wp-2020-32, World Institute for Development Economic Research (UNU-WIDER).
    6. Hamoudi, Amar & Thomas, Duncan, 2014. "Endogenous coresidence and program incidence: South Africa's Old Age Pension," Journal of Development Economics, Elsevier, vol. 109(C), pages 30-37.
    7. Amar Hamoudi & Duncan Thomas, 2014. "Endogenous Co-residence and Program Incidence: South Africa's Old Age Pension," NBER Working Papers 19929, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    formality; trade unions; public sector; earnings; South Africa;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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