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Papers

A key output for each of the REDI3x3 funded projects is the production of a publishable working paper. The papers below are those published by the project, since its inception in the later half of 2012. 

A total of 78 papers were commissioned, most of which are in the process of being finalised. These will be added to the list below, as they are completed.

Rulof Burger, Patrizio Piraino and Asmus Zoch May 03, 2017

The paper shows that responses to a traditional, open-ended reservation-wage question are susceptible to a high degree of overestimation and response noise when individuals are rarely confronted with actual wage offers. It argues that, for individuals with weak labor market attachment, a sequence of increasing hypothetical wage offers can more reliably elicit individual preferences: it contains more information about future decisions; it is less sensitive to irrelevant priming effects and more responsive to the economic circumstances of respondents. This has implications for a variety of empirical models in labour economics.

C. Friedrich Kreuser and Neil A. Rankin April 10, 2017

Very little work has been done on the substitutability of capital and labour at the firm level in South Africa. This paper updates Behar (2010), the first South African paper to examine this issue at a micro-level. The results confirm Behar’s broad finding – capital and labour are substitutes. This means that relative increases in the price of labour, through either higher wages or lower capital costs, encourage a substitution away from labour. The paper also finds that all types of labour, except managerial workers and unskilled production labour, are substitutes. Lastly, this paper investigates the association between firm-level estimates of own and cross-price elasticities of capital and the different type of labour, and firms’ perceptions of obstacles. These estimates find no significant relationship between the cost of financing and the elasticity of capital and the types of labour in most cases. One interpretation of this is that the cost of finance is not a constraint for firms who want to become more capital intensive. 

Arden Finn and Vimal Ranchhod April 04, 2017

A substantial literature has evolved in South Africa over the last twenty years that has estimated the levels and trends in income and earnings inequality. The evidence is overwhelming that South Africa both was, and remains, one of the most unequal societies in the world, although most of these measures are obtained using cross-sectional data. We contribute to this literature by investigating a dynamic measure of earnings inequality, using the nationally representative QLFS panel. These are high frequency data where individuals are surveyed up to four times in a twelve month period. The key mechanism by which these might differ from cross-sectional measures is through labour market churning. Our estimates of inequality in earnings drop by a small but meaningful amount when we move from a static measure, with an average Gini coefficient of 0.626, to a one-year average earnings measure with a Gini coefficient of 0.608. The decrease is not larger because, while the South African labour market does display a substantial amount of churning, this churning is concentrated amongst unskilled and low wage earners who fluctuate between unemployment and low-earnings employment. In contrast, well paid and highly skilled individuals tend to have much greater levels of job security, which mitigates the potential differences between the two measures.

Paul Cichello and Michael Rogan March 17, 2017

The paper examines the role that informal sector employment plays in poverty reduction using data from the National Income Dynamics Study (NIDS). Using a Shapley decomposition approach, it finds that government transfers and formal sector jobs are the dominant drivers of aggregate poverty reduction. Informal sector jobs currently play a limited role in poverty reduction at the national level. This is primarily driven by the fact that there are relatively few informal sector jobs compared to formal sector jobs. On a per-job basis, the poverty reduction associated with formal sector jobs and informal sector jobs is quite similar. The poverty reduction associated with one informal sector job is generally between 50 to 100 per cent of the poverty reduction associated with one formal sector job (depending on the poverty measure, poverty line and year chosen). Therefore, from a poverty reduction standpoint, policy makers are encouraged to view job gains and losses in the informal sector approximately on par with gains and losses of formal sector jobs. 

Susan Ziehl March 16, 2017

The reliability of Census data on demography and migration periodically comes under attack. This paper sheds light on the reliability of migration data with respect to the Western Cape. Census data and two independent studies are compared and the convergence or divergence of the findings assessed. Some of the findings at issue are that about 90% of Coloured, 20% of African and half of Whites living in the Western Cape in 2001, were born in this province (Census 2001 and PGWC). Another is that this applied to only 16% of African residents of Khayetisha (KMP) according to a survey of that area, compared with 30% according to Census 2001. The results of the comparisons are therefore mixed and qualified. There is higher consistency for more aggregate-level measures (provincial) than for disaggregated measures (magisterial district). For example, in the case of life-time migration, there were substantial differences in the results of the KMPS and Census 2001 for the Mitchell’s Plain magisterial district. On the other hand, the differences between the census and a non-Stats SA produced survey of the Western Cape Province, were less than 5% and can therefore be regarded as reliable. Accurate data on migration is essential for planning purposes. More comparative analyses such as that contained in this paper, are therefore called for. 

Frederick Fourie and Andrew Kerr March 16, 2017

This paper analyses the employment performance of enterprises in the informal sector, highlighting firms with employees and, in particular, paid employees. It uses StatsSA’s Survey of Employers and the Self-employed (SESE), which surveys owners of non-VAT registered enterprises. In contrast to the QLFS, the SESE provides data on enterprises, their owners and their employees. Whilst the general impression of the informal sector may be that of mostly one-person street traders or spaza shops, it finds that 21% of 2013 informal-sector enterprises had paid employees. These employing enterprises provided paid work to approximately 850 000 people (owner-operators plus paid employees), as well as 211 000 unpaid workers (probably paid in kind in some way). The paid component amounts to about twice the direct employment of the mining sector. Informal firms increasingly operate in non-trade sectors such as construction, financial and other services. The paper describes the characteristics of informal firms and analyse how these, such as premises and having accounts, are associated with the probability to employ. Linkages to LFS and QLFS data enable an analysis of the personal and household characteristics of the owners of informal firms. Regression analysis is used to get a multivariate grasp of the relationship between enterprise performance and the characteristics of firms and owners. The results make a compelling case that economic policies need to view the informal sector as an integral part of the economy, a heterogeneous sector with significant paid employment, which requires enabling policies – rather than as a ‘problem sector’ of hawkers and street traders mostly requiring regulation, compliance and policing. 

Derek Yu, Rulof P. Burger and Neil Rankin March 16, 2017

There are many sources of South African employment data, including Statistics South Africa (Stats SA) household and establishment surveys and data series constructed by research organisations and private companies. Different South African research clusters tend to use different data sources that can produce contradictory labour market trends, and such inconsistencies may have contributed to the cluster-specific perspectives on the South African unemployment problem. This paper aims to evaluate critically the reliability of the two most popular data sources: the Stats SA household and establishment surveys. A comprehensive discussion of the sampling and surveying approaches used to obtain employment data is followed by a comparison of the resulting employment trends for the total non-agricultural formal economy, and at a one digit SIC industry level. It finds that the establishment and household surveys provide relatively consistent estimates of the long-run trend in total and industry-specific non-agriculture formal employment once the most obvious shortcomings in the data have been accounted for. Finally, panel data techniques are applied in combination with other data sources to investigate the relative reliability of the establishment and household employment data. There is evidence of measurement error in the employment estimates from both sources, but the household survey data appears to generally provide a more reliable reflection of employment growth during the period under consideration. 

Arden Finn, Murray Leibbrandt and Vimal Ranchhod March 03, 2017

How should the correlation between the earnings of parents and children in South Africa be calculated in the presence of high unemployment, and what is the role of education in determining this relationship? The research uses the first four waves of the National Income Dynamics Study (NIDS) for 2008 to 2014/15, and the 1993 Project for Statistics on Living Standards and Development (PSLSD) to investigate the shape of the association between parental and child earnings across the earnings distribution, and finds that the correlation is strongest at the ends of the distribution. The paper corrects for possible biases that arise from co-resident parent-child pairs, and from selection into labour market participation in South Africa’s high-unemployment society. The research finds that correcting for selection into employment increases the intergenerational elasticity of earnings by approximately 10 per cent. The paper unpacks the role of education in determining the association of intergenerational earnings and finds that the impact is strongest at the bottom of the earnings distribution, and that education accounts for approximately 40 per cent of the total intergenerational earnings elasticity.

Michael Rogan and John Reynolds February 24, 2017

More than two decades since the advent of democracy in South Africa, the place of small-scale agriculture in rural development, poverty alleviation and food security remains ambiguous and highly contested. However, there is now some new evidence that official income poverty estimates in South Africa may be underestimating the contribution of rural, land-based livelihoods when measuring household well-being. This paper aims to explore this possibility further by identifying how household production activities are associated with improved food security among rural Eastern Cape households in the former homelands. The analysis is based on data from Statistics South Africa’s 2008/9 Living Conditions Survey and its annual General Household Surveys. The paper investigates trends and key patterns in household production in the Eastern Cape and compares these with other regions of South Africa. One of the key findings is that hunger levels are lower among farming households in the Eastern Cape even though a higher percentage of these households (relative to non-farming households) live below the national food poverty line. The paper concludes by discussing some implications for policy as well as the role of household production activities in meeting immediate food security needs.

Michael Rogan and Caroline Skinner February 23, 2017

This paper presents an analysis of the nature of, and recent trends in, the South African informal sector using Quarterly Labour Force Survey (QLFS) data from 2008-2014. The size of the informal sector, as a percentage of the non-agricultural workforce, has remained relatively constant, at between 16 and 18 per cent, over the period. Although smaller than developing country counterparts, this still constitutes a significant source of employment in the country, thus warranting analysis and policy attention. While previous analyses have paid attention to differentiation by income and status in employment, less attention has been paid to gender, industry and spatial differentiation. The paper analyses the following aspects: The impact of the 2008-09 economic crisis; gender reconfiguration within the informal sector; the informal sector and youth employment; improvements in educational levels; changes in industry composition; the geography of the African informal sector; and earnings. In reflecting on current policy responses to the informal sector, particularly at national level, we argue that a greater understanding of these variables, and how their role may have changed over time, is critical to robust and successful policy making. We explore policy implications in the conclusion.

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