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Unemployment and wages in South Africa: a spatial approach

  • Geeta Kingdon
  • John Knight

A large amount of recent evidence finds a negative relationship between local unemployment and wages in OECD countries, a relationship christened a ‘wage curve’. This contradicts the conventional model of the labour market in which high unemployment regions have higher wages to compensate for search and other costs. This paper discovers a wage curve in South Africa, a country with several times the typical unemployment rate of OECD countries. The wage curve elasticity in South Africa is similar to that in OECD countries (-0.1) but persists over a much larger range of unemployment rates, implying that unemployment can have a large impact on wages in South Africa. However, this wage flexibility does not extend to union wages which are well insulated from local unemployment conditions. The results here also shed light on the segmentation of the labour market based on labour immobility and on the debate about the appropriate definition of unemployment in South Africa.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1999-12.

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Date of creation: 01 Apr 1999
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Handle: RePEc:oxf:wpaper:wps/1999-12
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  1. Blanchflower, David G & Oswald, Andrew J, 1993. " Testing for a U-Shaped Wage Curve. A Response," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(2), pages 245-48.
  2. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  3. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  4. Carruth, Alan & Oswald, Andrew, 1987. "Wage Inflexibility in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 59-78, February.
  5. David G. Blanchflower, 1997. "Changes Over Time in Union Relative Wage Effects in Great Britain and the United States," NBER Working Papers 6100, National Bureau of Economic Research, Inc.
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