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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.

Cecil Mlatsheni and Vimal Ranchhod July 19, 2017

The South African youth unemployment rate is extremely high, at well over 50% of youth using the narrow definition of unemployment. This high unemployment rate has been a chronic problem and has been at these or similar levels since the democratic transition in 1994. Unemployment rates were probably also very high for a substantial period before 1994, but the lack of suitable data from that period makes precise measurement of the unemployment rates for that era quite impossible. This paper makes use of the first three waves of the nationally representative longitudinal dataset obtained from the National Income Dynamics Study, to explore the factors that assist school leavers in finding employment. By means of descriptive statistics and regression analyses, it estimates the differences in job finding rates by gender, geographical location, educational attainment, household structure and migration status. The results are not particularly surprising. Male youth, better educated youth, and youth who migrate from rural areas to urban areas tend to have better job prospects on leaving school. 

Vimal Ranchhod and Ihsaan Bassier June 05, 2017

What were the effects of a 52% increase in the minimum wage in the agricultural sector in South Africa in 2013? This paper estimates the short run effects of this policy change on the employment and income of farmworkers, using both repeated cross-sectional data as well as individual level longitudinal data from the Quarterly Labour Force Surveys (QLFS). It finds that the law had a substantial effect on the earnings of farmworkers who remained employed after the law came into effect, but that there was also a small and gradual decrease in agricultural employment. The descriptive evidence from the cross-sections indicates an increase in mean income per month of 17.9% about a year after the law came into effect. This coincided with a mean decrease in adult employment by this industry of about 8.2% over the same time period. Establishing causality empirically is challenging, though. The difference in differences estimates indicate substantial increases in wages in this industry after the law, but this increase is not systematically related to an individual’s wage rate prior to the law. There is also only very limited evidence that employment losses were statistically significant after the law. One explanation for the lack of a systematic relationship between pre-existing wages and subsequent job loss is that the wage gains following the law are observed to be more likely amongst workers who were earning relatively higher wages to begin with. Thus, endogenous compliance or partial compliance may make conventional estimators using a wage gap variable statistically invalid, and may also mitigate against unemployment effects. Overall, the most coherent interpretation of our results is that the law did cause significant increases in income for farmworkers, but did not cause substantial employment losses – although our regression models and data limitations make us cautious about these claims. 

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.

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