FORMAL–INFORMAL ECONOMY LINKAGES AND UNEMPLOYMENT IN SOUTH AFRICA

South Africa's high unemployment and small informal economy has been attributed to barriers to entry in informal labour markets. We develop a general equilibrium model based on a typology of informal activities that captures formal/informal linkages in product and labour markets. Simulations reveal that trade liberalisation increases formal employment, hurts informal producers, and favours informal traders and may explain the dominance of traders instead of producers. Wage subsidies also raise employment but further heighten competition for informal producers. Cash transfers favour informal employment, albeit with a fiscal burden. Results confirm the role of formal/informal linkages and product markets in explaining policy outcomes.     

REVISITING SOUTH AFRICAN EMPLOYMENT TRENDS IN THE 1990S

This article revisits South African employment trends recorded since 1995. In particular, it investigates whether the job losses and gains recorded by the October Household Survey jobs in the mid-1990s reflect the reality. This is done by comparing the different official data sets, and by exploring alternative sources of information for three sectors that substantially influenced this trend, namely formal agriculture, mining, and community, social and personal services. Potential inconsistencies within the October Household data are assessed, particularly in relation to the distribution of employees across formal and informal sectors and the categorisation of unpaid family workers. The implications of possible changes to the employment trend from 1995-2006 are considered. This article finds that the evidence is strong enough to call into question published employment trends. According to the October Household Survey, formal employment fell by 1.4 million between 1995 and 1997. The OHS and Labour Force Survey shows that formal employment then grew by 1.9 million between 1997 and 2006. According to the revised figures presented in this paper, 73,000 to 530,000 formal jobs were lost between 1995 and 1997 and 1.4 million net new jobs were created between 1997 and 2006. It is therefore possible that the plummeting and "recovery" of employment in the 1990s were both considerably less dramatic than that reflected in the official statistics. Further research and investigation would be required to validate these trends.     

THE EVOLUTION OF GENDER EARNINGS GAPS AND DISCRIMINATION IN URBAN CHINA, 1988–95

This paper analyzes the impact of market liberalization on gender earnings differentials and discrimination against women in urban China at the beginning of the 1990s. The observed stability in the overall gender earnings gap between 1988 and 1995 is shown to result from a complex set of evolutions across enterprises, earnings distributions, and time. Our results highlight the interplay of opposing forces, with economic reforms contributing to changes in managers’ behaviors in different dimensions. On the one hand, by bringing more competition, liberalization favored a reduction in discriminating behaviors in both urban collectives and foreign‐invested enterprises; on the other hand, by relaxing institutional rules, it led to a loosening of the government's egalitarian wage‐setting policies, leaving more space for discrimination in state‐owned enterprises.     

Informal employment and its effect on the income distribution in urban China

This paper discusses the issue of informal employment and its effect on the income distribution in China using datasets from the China Urban Labour Surveys of 2005 and 2010. Based on a new definition of informal employment, we estimated the proportion of informal employment relative to total non-agricultural employment in urban China and found it to be 49.7% in 2005 and 40.3% in 2010. Meanwhile, our study illustrated that informal employees' earnings were 67% that of formal employees, and this large earnings gap raised the Gini coefficient to 0.42 in 2005. The Blinder–Oaxaca decomposition result shows that the earnings gap explains more than half of the overall personal income inequality in urban China. These results indicate that informal employment has a significant effect on the income distribution in urban China. Consequently, regulating the labour market, eliminating job discriminations and legislating the informal employment should be considered as alternative means of reducing inequality in China.     

Could a Resource Export Boom Reduce Workers’ Earnings? The Labour-Market Channel in Indonesia

For a decade from 2000, Indonesia underwent a natural-resource export boom. Aggregate income rose, but real labour earnings stagnated. Employment rose, too, but mainly in low-skill sectors with predominantly informal employment arrangements. In this article, we reveal causal connections from the aggregate phenomenon of Dutch disease to these labour-market outcomes. We first explain broad sectoral trends, and then, integrating data from several national surveys, investigate sources of variation in boom-era labour earnings. We use instrumental variables to address issues of endogeneity and selection in earnings equations. After controlling for individual and district features, we find that the intensity of palm oil production—palm oil having been a key booming resource export—robustly predicts diminished formal employment, and that lower formality, in turn, robustly predicts lower earnings. Our findings establish causal linkages absent from prior studies, and so provide a structural dimension to ongoing debates over persistent poverty, rising inequality, and the lack of educational progress in Indonesia.     

Defining and measuring informal employment in South Africa

There is limited consensus on how to define informal employment in South Africa, but in the South African and international literature the three most common ways of capturing informal employment are the enterprise, employment relationship and worker characteristics approaches. This paper reviews the methods used by Statistics South Africa to measure informal employment before and after the introduction of the Quarterly Labour Force Survey, and other recently proposed methods. It then investigates the congruence, if any, between five measures of informality used in 2009. It finds that 94.7% of the self-employed are informal according to at least one definition, but only 62.6% according to all five combined. In addition, these two proportions are only 67.7% and 6.9% respectively in the case of informal employees. Econometric analysis is conducted to further investigate the differences between these measures.     

The effect of job displacement on labor market outcomes: Evidence from the Chinese state-owned enterprise reform

We estimate the long-term costs of job displacement for individuals who lost their jobs during the dramatic reform of state-owned enterprises (SOEs) in the late 1990s in China, using data from the China Health and Nutrition Survey. We find that the workers displaced during the SOE reform suffered substantial and persistent earnings losses. In addition, by comparing wage losses and reductions in employment and work hours over time, we find that the majority of long-term earnings losses were driven by declines in post-displacement wages. Moreover, we find that the displaced workers tended to find reemployment in low-skilled occupations, in the private sector, with less profitable employers, and through informal contracts, which may explain the substantial costs of displacement.     

IMPORTED SKILL‐BIASED TECHNOLOGICAL CHANGE IN DEVELOPING COUNTRIES

This paper discusses the occurrence of skill‐enhancing technology import, namely, the relationship between imports of embodied technology and widening skill‐based employment differentials in low‐ and middle‐income countries. Generalized method of moments (GMM) techniques are applied to an original panel dataset comprising 28 manufacturing sectors for 23 countries over a decade. Econometric results provide robust evidence of the determinants of widening employment differentials in low‐ and middle‐income countries. In particular, the proposed empirical evidence indicates capital–skill complementarity as a possible source of skill bias, while imported skill‐enhancing technology emerges as an additional driver of increasing demand for the skilled workers in these countries.     

Winners and losers: South African labour-market dynamics between 2008 and 2010

There is little empirical work in South Africa using panel data to describe employment and earnings dynamics. This paper contributes by describing labour-market transitions in South Africa between 2008 and 2010 for individuals aged 20 to 55 across two waves of nationally representative panel data. We find that women had more mobility than men into and out of the labour market and employment. However, women were less mobile between kinds of employment and across occupations. Casual employment was very unstable, with very few individuals remaining in this state. In contrast, there was little mobility out of regular employment into other kinds of employment. Average real earnings changes were positive for movements into regular employment and negative for movements into self-employment or casual employment. Strong movement out of semi-skilled occupations was striking, especially for males. In multivariate models, being the mother of young children was important in leaving regular employment.     

The Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant Industry

According to federal law in 2013, employers can take a credit of up to $5.12 for tips received by workers in satisfying the minimum‐wage requirement of $7.25. This article uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment, hours, and earnings in the U.S. restaurant industry. Using data from the Quarterly Census of Employment and Wages and the Current Population Survey, we find that a reduction in the tip credit increases weekly earnings but reduces employment in the full‐service restaurant industry and for tipped workers. The results are robust to controls for spatial heterogeneity in employment trends and are supported by a series of falsification tests.     

Labour Market Flexibility,Wages and Incomes in Sub‐Saharan Africa in the 1990s

Abstract: This paper provides an overview of how African labour markets have performed in the 1990s. It is argued that the failure of African labour markets to create good paying jobs has resulted in excess labour supply in the form of either open unemployment or a growing self‐employment sector. One explanation for this outcome is a lack of labour market ‘flexibility’ keeping formal sector wages above their equilibrium level and restricting job creation. We identify three attributes of labour market flexibility. First, whether real wages decline over time; secondly, the tendency for wages to adjust in the face of unemployment; and thirdly, the extent of wage differentials between sectors and/or firms of various size. Recent research shows that real wages in Africa during the 1990s may have been more downwardly flexible than previously thought and have been surprisingly responsive to unemployment rates, yet large wage differentials between formal and informal sector firms remain. This third sense of the term ‘inflexibility’ can explain a common factor across diverse African economies — the high income divide between those working in large firms and those not. Those working in the thriving self‐employment sector in Ghana have something in common with the unemployed in South Africa — both have very low income opportunities relative to those in large firms.     

GROWTH,EMPLOYMENT AND UNEMPLOYMENT IN SOUTH AFRICA

The high rate of unemployment in South Africa stands out in an otherwise vastly improved set of macroeconomic fundamentals compared with the situation in the early 1990s. One might be tempted to argue that by this single indicator alone, the government's macroeconomic policies have been a failure. This paper explains why jumping to such a conclusion would be a mistake. Annual time series data on total formal sector employment is constructed dating back to 1946. The relationship between economic growth and formal sector employment is then measured and changes in the employment coefficient over time are described. The employment coefficient was found to be relatively stable, with a long‐term average value of 0.5. It returned to this value after a short‐lived collapse in the mid‐1990s. It is concluded that the main reason for the persistently high and rising rates of unemployment in South Africa since the mid 1990s was the very large increase in the labour force and not a historically deficient growth or employment performance of the economy.     

Gender Discrimination and Worker Selectivity: A Comparison of the Self-employed and Wage Earners

This study compares the size and nature of the gender earnings differentials for the self-employed and wage earners in Korea, taking into account the workers’ self-selection of each employment type. The two-stage estimates of the earnings equation, corrected for worker selectivity, are used to decompose the gender earnings differentials into productivity-related and discriminatory factors. Our results suggest that the size of the gender earnings gap is larger in the wage sector than in the self-employment sector, but not by large margin, and so is the discrimination effect when not controlled for worker selectivity. With worker selectivity controlled, the discrimination effect is greatly intensified in the wage sector, while it becomes not significant in the self-employment sector. These findings imply that the observed gender earnings gap in the wage sector is largely ascribed to discrimination against women, while the gender earnings gap in the self-employment sector is mostly due to productivity difference that, in part, is caused by worker selectivity.     

How Do Local Labor Markets and Human Capital Affect Employment Outcomes after Job Loss?

This article uses the Longitudinal Employer‐Household Dynamics to evaluate how local industry concentration affects earnings losses for displaced workers. “Concentrated industries” are those industries with a high employment share within a labor market. This article compares earnings changes between displaced workers and job stayers within concentrated industries to the same within less concentrated industries. A separate comparison is made based on the expected level of job availability within the labor market. The findings show that earnings changes for displaced workers relative to job stayers are 7–13% higher within concentrated industries when job loss occurs during periods of high job availability. Earnings changes are 4.5–6% lower, however, when the same comparison is made during periods of low job availability. When firms are hiring workers, they are more likely to hire those previously employed within the same industry, since these workers have accumulated more relevant human capital.     

Evaluating Workplace Mandates with Flows Versus Stocks: An Application to California Paid Family Leave

Employer mandates typically have small effects on wages and employment. Such effects should be most evident using data on employment transitions and wages among new hires. Quarterly Workforce Indicators (QWI) provides county by quarter by demographic group data on the number and earnings of new hires, separations, and recalls (extended leaves). The QWI is used to examine the effects of California's 2004 paid family leave (CPFL) program, comparing outcomes for young women in California to those for other workers within and outside of California. CPFL had little effect on earnings for young women, but increased separations, hiring, and worker mobility.     

Tattoos,Employment, and Labor Market Earnings: Is There a Link in the Ink?

The popularity of tattooing has increased substantially in recent years, particularly among adolescents and young adults. Moreover, tattooed images are permanent unless the individual opts for expensive, time consuming, and painful removal procedures. Given the increasing popularity of tattooing, and the permanent nature of this action, it is of interest to know whether tattooed workers are more or less likely to be employed and, conditional on employment, if they receive wages that are different from the wages of their non‐tattooed peers. To investigate these questions, we analyze two large data sets—from the United States and Australia—with measures of tattoo status, employment, earnings, and other pertinent variables. Regardless of country, gender, specific measures, or estimation technique, the results consistently show that having a tattoo is negatively and significantly related to employment and earnings in bivariate analyses, but the estimates become smaller and nonsignificant after controlling for human capital, occupation, behavioral choices, lifestyle factors, and other individual characteristics related to labor market outcomes. Various robustness checks confirm the stability of the core findings. These results suggest that, once differences in personal characteristics are taken into account, tattooed and non‐tattooed workers are treated similarly in the labor market. We offer suggestions for improving future surveys to enable a better understanding of the relationships between tattooed workers and their labor market outcomes.     

A note on black-white wage disparity

Conclusion The evidence in this article helps to explain the black-white earnings differential in 1970, six years after the passage of Fair Employment Legislation, in terms of traditional measures such as experience and education along with a public policy measure that has of late come under fire. And contrary to the notion that the gains from such government policy have not benefited the less fortunate workers but simply accrued only, or mainly, to upper- or middle-class blacks, the results presented here indicate that enforcement, such as it is, has had beneficial effects for black men and women in virtually all major occupational categories. When a distinction is made between the various major occupational categories, the importance of education and experience as factors that contribute toward explaining black-white earnings differentials is generally supported by this study. However, neither education nor experience shows a consistent explanatory power across occupational categories and especially across the sexes. For example, experience is more frequently found to be a significant factor for black men than it is for black women. Education, on the other hand, was found to have no statistically significant relationship with wage differentials in major blue-collar job categories for both men and women, thus lending some credence to the dual labor market thesis regarding returns to education. By far the factor we have found to be the most consistent with respect to its impact upon racial wage differentials for both men and women is the fair employment variable. Indeed, across major occupational groups the existence and enforcement of fair employment laws seems to have had, generally, a more significant effect on reducing racial wage differentials than each of the other independent variables.     

Some evidence on the cohort earnings differentials of men in Japan

This study analyses the cohort earnings differentials of full-time working men in Japan using large micro data on individuals. Log earnings differentials between two cohorts of the same age calculated from 2012 and 2017 surveys reveal a substantial earnings decline for university graduates around age 43 and senior high school graduates around age 38 in 2017. These cohorts experienced a severe deterioration of job opportunities after the bubble burst. The Blinder–Oaxaca decomposition shows that the composition effect dominates the wage structure effect. In particular, a shortened length of tenure and a decline in the share of those working in a large firm are the main causes of the earnings gap for senior high school graduates and for university graduates, respectively. While an increase in the proportion of those working in the service sector and a reduced share of regular workers are also important determinants for the earnings differentials for high school graduates, deteriorated opportunities for promotion to supervisory positions play an important role for university graduates. Extending this analysis to a longer time period and estimating the cohort earnings differential equation clarify that the observed stability of cohort earnings differentials for university graduates emerge not only from the importance of firm size differentials in determining their earning differentials, but also from the high stability of firm size differentials between cohorts for university graduates.     

Rates of return to education of blacks in South Africa

The aim of this empirical study was to calculate private and social rates of return to education and to test the hypothesis that education is a major determinant of earning differentials for blacks in South Africa. Data for 23 278 working men and women were extracted from the 1985 Current Population Survey files. This comprised a sample representative of the black population in the Republic of South Africa excluding the former Transkei, Bophuthatswana, Venda and Ciskei territories. Lifetime earnings profiles were constructed from these data for five educational levels, namely, no schooling up to Standard 1; Standards 2 to 4; Standards 5 to 7; Standards 8 to 9; and Standard 10. Schooling was assumed to account for 60 per cent of the earnings differentials between these profiles. Imputed average household outlays on schooling were taken as the private direct cost of education. These were supplemented by estimates of per pupil spending by the various government departments responsible for black education, to calculate the social costs per year of primary and secondary schooling. Indirect costs in the form of imputed foregone earnings were included from Standard 5 (age 15) onwards. The private internal rates of return to education of males were found to be about 16 per cent at primary level and 24 per cent for secondary schooling. Corresponding social rates of return are about 6 per cent for primary and 15 per cent for secondary education. Estimates for females showed negative rates of return between no schooling and Standards 2 to 4, the private and social rates being estimated at ‐1 per cent and ‐4 per cent respectively; from Standards 2 to 4 to Standards 5 to 7, a private rate of 12 per cent and a social rate of 4 per cent are reported; and for the remaining secondary school phases private rates of about 32 per cent and social rates of about 15 per cent are estimated. The study confirms that education is a major determinant of earnings differentials and education expansion can be regarded as a powerful earnings equaliser.     

Is there a trade-off between the employment and wages of unskilled African South Africans?

The possible trade-off between employment and wages has characterised most of South Africa’s labour market debates, particularly with regards to decent wages versus unemployment. In this article we explore the relationship between labour market earnings and the level of employment among African birth cohorts using labour force data from 1997 to 2011. We find that the association between an increase in the proportion of unskilled employed in a birth cohort and earnings is mediated by the sector of employment. While some sectors exhibit the expected negative association, there is a robust positive relationship between the first two quartiles of the earnings distribution within birth cohorts and the proportion of the birth cohort who are employed in unskilled occupations in the manufacturing and trade sectors. Because a range of market forces determine this relationship, further research is needed to unpack the reasons for such varied outcomes in order to better inform the debates on labour market interventions like the proposed National Minimum Wage and to appreciate the potential impact of such policy interventions on wages and employment.