Summary of WP/94/108: “Disequilibrium in the Labor Market in South Africa”

Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.

Abstract

Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.

This paper characterizes wages, employment and unemployment in South Africa from a macroeconomic viewpoint. Unemployment is decomposed into a Keynesian or cyclical component that can be identified with deficient aggregate demand, and a classical or structural component that can be identified with aggregate supply. The evidence suggests that unemployment is largely structural and associated with supply factors rather than due to cyclical factors associated with the recent recession.

Alternative explanations for the persistence of deviations of market wages from full-employment levels are explored. Three models are discussed: a nutrition-efficiency-wage model; a wage-incentive model; and a model of collective bargaining. Each is shown to be empirically capable of generating the kinds of wage and employment gaps observed in South Africa. While the models are, therefore, observationally equivalent at an aggregate level, it is useful to examine the different models because they stress alternative factors in creating a wage gap and thus unemployment.

The predictions of the models for wages and employment are discussed in light of recent and prospective developments in South Africa. These developments include: the effects of increases in the capital stock and improvements in multifactor productivity; the redistribution of social expenditures that is underway; reductions in effective transportation costs associated with the removal of apartheid; structural measures that increase labor market flexibility; and changes in union membership.

Working Paper Summaries (WP/94/77 - WP/94/147)
Author: International Monetary Fund