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.     

Eastern European trade and the Austrian labour market

Eastern European Trade and the Austrian Labour Market. — Recent years have seen a major break in trade relations between Western and Eastern European countries. Austria experienced a large bilateral trade creation with these countries. In this paper, the authors take a closer look at the impact this trade growth had on the Austrian labour market. To differentiate as far as possible between different segments of the labour market, they concentrate on unemployment experience and wage growth for a panel of individual workers in Austrian industry. The results show rather small employment effects, the impact on wage growth is more pronounced with interesting modifications for mobile and immobile workers.     

The wages and employment of female day‐labourers in English agriculture, 1740–18501

Using a new sample of farm accounts from 84 farms throughout England, this article provides measures of regional variation and changes over time in female wages and employment in agriculture. Female wages were not fixed, but changed over time and responded to high demand for female labour. The female‐male wage ratio fell between 1750 and 1850, except in the industrial north west. In 1851 approximately 19 per cent of agricultural day‐labourers were female. In the industrial north west, opportunities for factory employment reduced the supply of females to agriculture, but elsewhere the relative demand for female labour in agriculture declined.     

Sectoral Wage Rigidities and Labour and Product Market Institutions in the Euro Area

We estimate wage Phillips curve relationships between sectoral wage growth, unemployment and productivity in a country-industry panel of euro area countries. We find that institutional rigidities – such as labour and product market institutions and regulations – limit the adjustment of euro area wages to unemployment, in both upturns and downturns, particularly in manufacturing and, to a lesser extent, in the construction and service sectors. In addition, there are further limitations in the response of wages to changes in unemployment during economic downturns which suggests that euro area wages are also characterised by significant downward wage rigidities, especially in the manufacturing sector. These results are robust to specifications that account for factors that may affect structural unemployment (such as duration-dependent unemployment effects), as well as changes in the skill composition of employment that may affect the evolution of aggregate wages. The results also hold for panels including or excluding the public sector (where wages may be determined differently to the private sector also due to the effects of fiscal consolidation on public sector wages during the crisis). From a policy perspective, reforms in product and labour markets which reduce wage rigidities can facilitate employment growth and enhance the rebalancing process in the euro area.     

Books and publications received

ABSTRACT

Economic theory predicts that regional wages will converge as transport and communication technologies bring labour markets together. An exploration of this transition from labour market segmentation to unification requires long-term evidence of nominal wages and cost of living by region. This paper presents new evidence of wages for male manufacturing workers and cost-of-living indices across 24 Swedish counties between 1860 and 2009. Our findings indicate that the Swedish regional wage differentials were a great deal larger in the 1860s than in the 2000s. Most of the compression took place between the 1860s and World War I, as well as in the 1930s and during World War II. Differences in expenditures on housing impact on our assessment of convergence in the post-World War II decades: the nominal measure declines, while the real one stays constant. Our concluding discussion engages with the assumption that before World War I, regional wage convergence was associated with labour mobility, spurred by improved communication and transportation technologies as well as by the implementation of modern employment contracts. In the 1930s and 1940s, in contrast, regional wage convergence can be traced to high unionisation and centralised collective bargaining in the labour market, two distinguishing features of the Swedish Model.     

On the heterogeneous short‐term effects of minimum wages on labor demand

A strand of the literature documents no effects or even positive effects of a higher minimum wage on employment. This evidence is frequently linked to the existence of monopsonistic labor markets or search frictions. However, empirical studies show that these findings could be related to a low short‐term minimum wage–employment elasticity in a competitive labor market. We show that mixed theoretical employment effects of a minimum wage policy can be predicted in the short term in assignment economies with price‐taker agents and no search frictions.     

A Flexicurity Labour Market in the Great Recession: The Case of Denmark

Flexicurity labour markets are characterised by flexible hiring/firing rules, a generous social safety net, and active labour market policies. How can such labour markets cope with the consequences of the Great Recession? This paper takes a closer look at this question considering the case of Denmark. It is found that employment adjustment is not particularly large in international comparison, but a larger burden of adjustment is along the extensive (number of employees) rather than the intensive (hours) margin. The level of job creation is high, and remains so despite the crisis, although job creation is pro-cyclical and job-separation counter-cyclical. As a consequence most unemployment spells remain short. Comparative evidence does not suggest that flexicurity markets are more prone to persistence. Crucial for this is the design of the social safety net and in particular the active labour market policy. However, it is a challenge to maintain the efficiency of the activation system in a period with high unemployment.     

Institutional wage-setting,labour demand and labour supply: Causal estimates from a South African pseudo-panel

Unemployment in South Africa has multiple causes. This article uses a district pseudo-panel to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. We 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. These channels combine to result in the positive causal effect of wage growth on unemployment. The research investigates whether these effects are dominated by districts in which unionisation rates are high and employment is concentrated in large firms. Wage growth of middle-paid to highly paid workers – as opposed to low-paid workers – reduces local labour demand and raises local unemployment. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.     

Outsourcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain

We set up a model, in which firms in a small industrializedcountry outsource part of their production to a foreign economy,which is rich in low-skilled labour. We analyse, how a declinein trade costs affects outsourcing activities and the productionstructure in the small economy. A stimulation of cross-borderoutsourcing raises wage dispersion and, if labour markets areunionized, also the employment of high-skilled relative to low-skilledlabour. Using a panel of Austrian industries, we find, first,that decreasing trade barriers—as observed after the fallof the Iron Curtain—indeed stimulate outsourcing to Centraland Eastern Europe and the former Soviet Union, and, second,that outsourcing to these countries significantly shifts relativeemployment in favour of high-skilled labour.     

Distribution of income, technology and employment: An analysis of the industrial sectors of Ecuador, Peru and Venezuela

The increasingly popular strategy which postulates that a redistribution of income can automatically produce a higher level of employment and in turn, a better distribution of income, is discussed in this paper with special reference to the industrial sector. On the basis of data from Ecuador, Perú and Venezuela and utilizing a Leontieff type of model disaggregated by technological strata, the author concludes that the redistribution of income does not significantly affect employment in the industrial sector, since the two fundamental assumptions on which the positive results are expected are of doubtful validity. On one hand, the structure of consumption of industrial goods is inelastic to changes in income distribution and on the other, the production of wage goods does not necessarily imply the use of more labour intensive techniques.Given the need to improve the distribution of income, the author maintains that for such redistribution to be used to promote employment creation, special attention should be given to the direction of consumption of those benefited with the redistribution and to the channelling of the additional demand towards those establishments which use more labour intensive techniques.     

Japanese labour in the 1990s: stability and stagnation

We review the state of the labour market and employment practicesin Japan over the past 15 years and try to evaluate the natureof the changes that have been occurring. We also look at howgovernment policy has reacted to the conditions in the labourmarket and what implications this has for the future. Althoughthere has been a continual shift of resources away from manufacturingand agriculture into services, employment practices have notbeen changing so rapidly, and job protection is actually stronger.This, along with wage restraint, accounts for why unemploymenthas only increased by some 2.5 percentage points during almosta decade of stagnation. We also note that much government policyhas acted to maintain existing employment practices and thatlabour economists are divided as to whether or not this is agood thing.     

The changing fortunes of an aristocracy? Determinants of wages and conditions of employment in Kenya

This article examines the functioning of the labour market in the modern sector in Kenya and, in particular, considers the determinants of wages and other conditions of employment. An analysis of negotiated wages from collective agreements signed during 1974–75 suggests that measures of an ‘ability to pay’ characteristic of industries with limited competition in the product market and realizing above-average labour productivity are the best predictors of inter-industry wage differences. Locational and ownership variables are also found to be significant. Size of labour force is only significant for clerical wage rates. Four case studies suggest superior conditions of employment are positively associated with higher than average wages.     

Structural change in Malawi since independence: Consequences of a development strategy based on large-scale agriculture

This paper investigates the nature of the structural change which has occured in the Malawian economy since independence and identifies key policies pursued by the government which it is argued have been decisive in shaping this development. The salient feature of structural change is shown to be the rapid growth of large-scale agriculture, associated with an equally rapid transfer of labour into wage employment and a decline in the importance of peasant production. The implications of these changes for living standards and future development and policy are considered.     

农村劳动力农业就业空间行为研究——以江苏省盐城市亭湖区黄巷村为例

农村劳动力就业空间行为是个完整的过程,包括就业感知行为、就业决策行为、就业行为和就业体验行为。通过对黄巷村的问卷调查,利用SPSS软件分析得出：农村劳动力在就业前对就业环境的总体感知强度不是很高,且在不同的人口学特征上有差异;农村劳动力做出在本地从事农业的决策主要是受外部因素和家庭因素的影响,且他们在就业前有很多顾虑;农村劳动力从事的农业主要是在充分发挥当地优势基础上的集约化农业,大部分人在农闲时有兼业行为;农村劳动力对其目前的农业就业状态满意度较低,这会影响他们的再次就业感知、决策和行为。     

Product market competition, unemployment and income disparities

Product Market Competition, Unemployment and Income Disparities. — We discuss how promoting competition in product markets affects unemployment and wage differentials. We examine a general equilibrium model with real wage rigidities in labor markets and market power in product markets. We illustrate how more intense competition reduces unemployment. A decrease of markups would induce an increase of real wages if real wages were flexible. This enables the employment of more low-skilled people above a real reservation wage. More intensive competition, however, widens wage and income differences between low-skilled and high-skilled workers. Differences of income distributions across countries could also be caused by differences in the intensity of product market competition.     

Labour market response to globalisation: Spain, 1880–1913

This paper analyses the impact of globalisation (trade and migration) on the Spanish labour market between 1880 and 1913 by examining the influence that globalisation factors had on agricultural and industrial wages. Our results show that the nineteenth century grain invasion had a negative impact on agricultural wages, whereas the fall in wheat prices did not benefit industry workers. We also found that migration pushed up real agricultural and industrial wages. As agriculture was the main sector in the economy, the final impact was a wage decrease. The negative impact of trade on agricultural and industrial labour markets partly explains the trade policy response of “integral protection”. However, other alternatives that would have been effective in raising living standards, such as migration policy, were not used.     

Non-standard Employment in Sweden

In Sweden, as in many other countries, marginal groups tend to be overrepresented in non-standard employment. A decomposition of the employment rate of full-time workers on permanent contracts reveals that non-standard employment contributes to a substantially weaker labour market attachment for females and the foreign born than suggested by conventional employment figures alone. Our econometric analysis shows that the negative wage premia associated with fixed-term employment are considerably smaller in Sweden, both for natives and foreign born, than those that have been found for other countries. This may be due to a highly compressed wage structure and extensive coverage of collective bargaining in Sweden. On the whole, the type of fixed-term contract seems not to matter for the estimated wage premia.     

RURAL-URBAN MIGRATION AND SURPLUS LABOUR

FLEXIBLE work-hours and surplus labour in agriculture are incorporatedinto the Harris-Todaro model. Migration equilibrium is characterizedby equality of expected welfare rather than expected incomein the two sectors. Increase in expected wage still causes outnugrationfrom agriculture, but if the commodity-price ratio is exogenous,outmigration occurs when minimum wage is raised even when expectedurban wage is constant. Moreover, migration flows are largerthan in a closed economy with fixed work-hours. Implicationsof these results for determining shadow wage rate of labourand designing economic policy are also discussed.     

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.     

Employment quality index for the South African labour market

ABSTRACT

While the South African government specifically set targets on job creation in its numerous economic strategies since the economic transition, various local studies examined the levels and trends in labour force, employment and unemployment to evaluate if these targets were met. However, the quality of employment has not been thoroughly examined. This is the first local study that fills the existing research gap by deriving a composite, multidimensional employment quality index by taking 18 indicators from seven dimensions into consideration: wage, work hours and flexibility, employment security, income security, social benefits, skills and participation. Using the 2010–16 Quarterly Labour Force Survey data, the empirical findings indicated that highly educated, white male workers aged at least 35 years, who lived in urban areas of the Western Cape and Gauteng provinces, and were involved in high skilled occupations in the formal, public sector enjoyed significantly better employment quality.