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.
Despite the high open unemployment in South Africa, the informal sector remains small. This paper aims to bring us closer to understanding the incentives and constraints of job-seekers who find employment in the heterogeneous informal sector. It does this by identifying two tiers in the sector (the survivalist and the growth oriented micro-enterprises) by using the data-driven k-medians clustering technique which finds natural groupings of jobs in the informal sector by using several work characteristics. Once the members of either tier of the informal sector have been successfully identified it finds the properties that facilitate entry into either tier of the informal sector. Growth oriented micro-enterprise entrants are more likely to have access to financial and human capital, which form barriers to entry some job-seekers. On the other hand, survivalist workers have been induced into the informal sector to find employment when other sources of income are lacking.
This paper provides an analysis of transitions in and out of informal enterprise activity. Using data from the Survey of Employers and Self-Employed (SESE) together with panel elements of the Quarterly Labour Force Survey (QLFS) we observe entering as well as exiting informal enterprises in SESE. Within the broader context of labour market transitions in South Africa we describe the flow of individuals into informal enterprise ownership; describing with them the characteristics of the enterprises they establish relative to incumbent firms. We also profile firms which dissolve during the quarter following SESE and comment on the duration of firm entry. Our results suggest that exit is significantly higher among new firms, despite the higher market and employment value of some newly established informal enterprises. At the same time our results suggest clear differences in the transitions between informal enterprise ownership and employment elsewhere in the economy, on the one hand, and non-employed states, on the other. These two situations seem to involve markedly distinct enterprises which reflect the labour market value of their owners. Entrant firms established by previously employed individuals have a higher market and employment value in comparison with incumbent enterprises and those newly established by individuals previously not-working. Despite this, many such firms survive for a short duration.
Townships are an evident manifestation of spatial and economic inequality in South Africa. Located on the fringes of the traditional urban economies, townships are characterised by underdevelopment and a bustle of informal business activities. The concentration of informal business activities tends to aggravate underdevelopment because of their inherent low productivity and inability to link with formal markets. Informal activities are however not homogenous. This study of the non-retail component of the Tembisa informal sector makes a distinction between the ‘stagnant, less productive’ Traditional Informal Enterprises (TIEs) and the ‘more dynamic and productive’ Modernising Informal Enterprises (MIEs). It develops a framework for classifying informal enterprises in terms of this distinction, using thirteen enterprise characteristics. On the basis of a survey using a structured questionnaire, this framework is applied to the identified enterprises and assesses whether certain sections of Tembisa have sufficient conditions for the existence or emergence of MIEs that could form the basis for stimulating the local economy. The results indicate that (non-retail) informal enterprises in Tembisa are mostly ‘traditional’ in nature. Townships cannot achieve internally-driven local economic revitalisation without the presence of, or at least sufficient conditions to support, emergent MIEs. Strategies to support informal enterprises or revitalise the township economy must be differentiated to suit the needs of, and constraints faced by, the different categories of informal enterprises, i.e. those that are more traditional and those that are more modernising.
This paper assesses two sources of information on the South African wealth distribution: a survey conducted among almost 36,000 South Africans in 2010-2011, and a novel sample of almost 1.2 million personal income tax records for the 2010-2011 tax year. Since both sources cover different sub-populations, it proposes an approach to scale the results by fitting and drawing from censored distributions. Despite the differences in the coverage of each dataset, the paper finds that both sources yield similar results for overall inequality once appropriate censoring rules and parametrizations are defined. In particular, it finds robust evidence that wealth is much more unequally distributed than incomes: 10 percent of the population own at least 90-95 percent of all wealth, compared to 55-60 percent of all labour incomes. With a Gini coefficient of about 0.95 (compared to 0.7 for incomes}, the South African wealth distribution is as unequal as that of the world as a whole.
There are long-standing concerns that household income mobility is over-estimated due to measurement errors in reported incomes, especially in developing countries where collecting reliable survey data is often difficult. We propose a new approach that exploits the existence of three waves of panel data to can be used to simultaneously estimate the extent of income mobility and the reliability of the income measure. This estimator is more efficient than 2SLS estimators used in other studies and produces over-identifying restrictions that can be used to test the validity of our identifying assumptions. We also introduce a nonparametric generalisation in which both the speed of income convergence and the reliability of the income measure varies with the initial income level. This approach is applied to a three-wave South African panel dataset. The results suggest that the conventional method over-estimates the extent of income mobility by a factor of more than 4 and that about 20% of variation in reported household income is due to measurement error. This result is robust to the choice of income mobility measure. Nonparametric estimates show that there is relatively high (upward) income mobility for poor households, but very little (downward) income mobility for rich households, and that income is more reliably captured for rich than for poor households.
Unemployment in South Africa has been attributed to multiple causes. Wages have grown faster than productivity to reduce labour demand; demographic shifts have increased labour supply. This paper uses a district pseudo-panel, constructed from household surveys, to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. The goal is to assess whether hiring decisions are more sensitive to increases in wages of low paid workers than high paid workers, and whether wage growth prompts entry into the labour market. All these channels combine to result in a positive causal effect of wage growth on unemployment. Furthermore, the research investigates whether these effects are dominated by districts in which unionization rates are high and where workers are employed by large firms. In so doing, the paper quantifies the role that institutional wage-setting has in raising wages (which in turn contribute to unemployment). The results illustrate that wages of middle to highly paid workers – as opposed to low paid workers – lead to depressed local labour demand and higher local unemployment. These effects can be explained by cross-district unionization rates and the distribution of large firms. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact of wage growth on labour market outcomes is determined by these wage-setting institutions.
This paper describes the monetary and time costs of commuting to work in South Africa. It finds that these costs are high and that monetary costs of commuting have increased faster than inflation, mainly through a shift away from walking and towards minibus taxis and driving. Journey times are substantially higher than the OECD country average. Using a method suggested by Hausmann (2013) the paper estimates the effective tax on hourly earnings that the time and monetary costs of commuting impose. It finds high effective tax rates, which are a disincentive to working far from home. This only deepens the puzzle of why South Africa’s informal sector is so small, since more than half of the informally self‐employed work at home and pay no transport costs. The paper shows that whilst minibus taxis conveyed around 71% of commuters that used public transport in 2013, the industry receives less than 1% of the direct public transport subsidy provided by the South African government.
Workplace intermediaries (WI) function to match people to job opportunities. At a minimum, that may simply require selecting a person for an available position. But the function of an intermediary can include much more – such as providing support to potential employees before and after recruitment and even helping to expand the number of job openings. With unemployment rates amongst youth at unprecedented levels, and with questions raised about the effectiveness of both market and government initiatives to stem the problem, non‐profit organisations (or Non‐Governmental Organisations) have stepped in to try their hand as workplace intermediaries. This paper draws on nine case studies to map out the role played by NGOs as workplace intermediaries in South Africa. It relates the explanations these NGOWIs give for youth unemployment and the solutions they offer. The paper concludes that, while the work of these NGOs is important and sometimes innovative in helping young people get a foot‐in‐the‐door, it is generally limited to matching youth to existing jobs.
This paper examines the role of ‘intermediary organisations’ in the labour market, and in particular, the employment contribution of the work of intermediaries operating in the youth sector. The analysis will highlight the positive impact of these micro‐level programmes on youth employment. The Paper also comprises a selection of country case studies looking at the work of intermediaries in the United States of America (USA), the United Kingdom (UK), Australia and in the global advocacy work of the Organisation of Economic Cooperation and Development (OECD). The analysis seeks to represent ‘the labour market’ and its various mechanisms ‐ including the transition of young people from school into work ‐ as socially constructed.
This paper considers some questions on the zero‐rating of VAT in SA. It first asks whether (conceptually) zero‐rating should be a consideration. Then it presents a quantitative investigation of the impact on the poor if zero‐rating were to be removed, as well as the tax revenue implications of such a policy change. The paper also explores the appropriateness of the items currently zero‐rated and whether or not more items should be considered for possible zero‐rating. It further considers alternatives like a luxury VAT or revised excise rates. Finally, the paper explores the possibility of replacing the benefits of zero‐rating to the poor with an income support programme.