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© 2021 International Monetary Fund
WP/21/165
IMF Working Paper
Research Department
Labor Market Reform Options to Boost Employment in South Africa
Prepared by Romain Duval, Ippei Shibata and Yi Ji
Authorized for distribution by Romain Duval
June 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
Raising South Africa’s low employment rate to levels seen in emerging market or advanced economy peers could raise GDP per capita by 50 to 60 percent and reduce income inequality dramatically in the long term. By putting further strain on an already fragile labor market, Covid-19 has raised the urgency of action. This paper reviews labor market policy and other reform options to enhance South Africa’s job market performance, drawing from international evidence and new analysis. We find much scope for improving the design of key labor market institutions—including collective bargaining and employment protection legislation—and active labor market policies to improve job seekers’ prospects. These reforms should come hand-in-hand with others, such as in the areas of education or product market regulation, that may work pay. Labor market and other reforms would primarily benefit disadvantaged groups such as youth.
JEL Classification Numbers: E24, J08, J21, J38, J58, L51, O43, O55
Keywords: South Africa; labor market; unemployment; structural reform; collective bargaining; minimum wage; employment protection; active labor market policies; product market; youth employment.
Author’s E-Mail Address: rduval@imf.org, ishibata@imf.org, Yji@imf.org
Contents
ABSTRACT
I. INTRODUCTION AND SUMMARY OF MAIN FINDINGS
II. LABOR MARKET PERFORMANCE IN SOUTH AFRICA: A BRIEF OVERVIEW
III. IMPROVING THE FUNCTIONING OF KEY LABOR MARKET INSTITUTIONS
IV. STRENGTHENING LABOR FORCE EMPLOYABILITY
V. LIFTING YOUTH JOB PROSPECTS
VI. CONCLUSION
VII. APPENDIX I. MODEL-BASED ANALYSIS OF WAGE BARGAINING REFORM IN SOUTH AFRICA
FIGURES
1. Employment Rates
2. Employment and labor force participation rates
3. Unemployment Rate
4. Cyclical Sensitivity of Unemployment
5. Unemployment Rate (by age)
6. Unemployment Rate (by Education)
7. Unemployment Rate (by Race)
8. Shift-share analysis of unemployment in South Africa
9. Union density and Bargaining coverage Rate
10. Centralization of Bargaining
11. Industrial disputes
12. Cooperation in employee-employer relations
13. Minimum-to -median wage ratios
14. Estimated impact on unemployment and job flows of wage bargaining flexibility at the firm level
15. Number of annual cases referred to the CCMA
16. Stringency of Product Market Regulations
17. Percentage of Firms with a Bank Loan or Credit Line
19. Youth Gender Gaps
18. Youth Labor Market Performance
20. Employment Rates for Youth and Adults
22. Job Quality Effects of Structural Policies and Characteristics
A1 Estimated Impact on Unemployment and Job Flows of Wage Bargaining Flexiblity at the Firm
TABLES
1. A (very) Simplified taconomy of taxonomy of collective bargaining systems around the world
2. Calibration of Model Parameters