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When Crisis Meets Discrimination: Difference-in-Differences Evidence on Racial Wage Penalties in Post-COVID South Africa

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  • Daas, Yousuf
  • Dalmon, Danilo Leite

Abstract

South Africa entered the COVID-19 pandemic with one of the world's most unequal labor markets, where racial stratification shaped not only employment access but the distribution of wages within employment. This paper estimates the differential effect of the post-2020 period on monthly wages using seven waves of the Labor Market Dynamics in South Africa (LMDSA) dataset spanning 2017 to 2023. The empirical strategy employs a difference-in-differences design with race-by-post-2020 interaction terms, conditional on province, year-by-quarter, education, industry, and occupation fixed effects, with standard errors clustered at the survey stratum level. The results show that racial wage inequality widened sharply and persistently after 2020 across all subgroups examined. Among wage employees, African/Black workers experienced a relative wage penalty of approximately 37 percent and Colored workers approximately 52 percent. The most striking finding concerns employers: African/Black business owners suffered a relative earnings loss of approximately 59 percent, entirely reversing a modest pre-pandemic advantage, exposing the fragility of post-apartheid entrepreneurial gains. Gender-disaggregated estimates reveal larger conditional penalties for non-White men than women among the employed, though this coexists with documented severe labor force exclusion of women during the crisis. Occupational strata analysis confirms that penalties are present across all skill levels and are not explained by compositional sorting across industries or occupations. These findings are consistent with a structural amplifier interpretation, whereby the pandemic revealed and entrenched pre-existing vulnerabilities in a segmented labor market rather than generating new ones.

Suggested Citation

  • Daas, Yousuf & Dalmon, Danilo Leite, 2026. "When Crisis Meets Discrimination: Difference-in-Differences Evidence on Racial Wage Penalties in Post-COVID South Africa," SocArXiv 8xrjc_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:8xrjc_v1
    DOI: 10.31219/osf.io/8xrjc_v1
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