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.     

Wage Divergence and Asymmetries in Unemployment in a Model with Biased Technical Change

In an attempt to explain the different wage and unemployment responses in mainland Europe and the US to a fall in demand for low-skilled labour, we present a model with two levels of skills and two classes of goods. We analyse the response to skill-biased technical change in two distinct labour market regimes. A trade-off between wage divergence and unemployment of skilled and unskilled workers occurs. Skill-biased technical change turns out to have a different impact in both regimes, due to a different working of the chimney effect.     

European Labour Mobility: Challenges and Potentials

European Union economies are pressed by (i) a demographic change that induces population ageing and a decline of the workforce, and (ii) a split labour market that is characterized by high levels of unemployment for low-skilled people and a simultaneous shortage of skilled workers. This lack of flexible high-skilled workers and the aging process has created the image of an immobile labour force and the eurosklerosis phenomenon. In such a situation, an economically motivated immigration policy at the European level can generate welfare improvements. A selective policy that discourages unskilled migrants and attracts skilled foreign workers will vitalize the labour market, foster growth and increase demand for unskilled native workers. The paper summarizes the available economic insights, and suggests (i) the need to harmonize the single-country migration policies across Europe and (ii) that the European Union needs to become an active player on the international labour markets by providing competitive institutional settings for European companies. The author is President of the German Institute for Economic Research (DIW Berlin), Director of the Institute for the Study of Labor (IZA) in Bonn, Professor of Economics at the University of Bonn, and Honorary Professor at the Free University of Berlin. Revised version of a paper presented at the high-level expert conference ‘Jobs for Europe’ on the Social Policy Agenda for the European Union on October 25–26, 2004 in Amsterdam. The author thanks Aart Jan Bette, Henk Don, Renske Gerstel, Klara Scheepers, Jan van der Velden and other members of the editorial committee of this conference as well as conference participants, two anonymous referees of this journal, and Amelie Constant, Don DeVoretz, Holger Hinte and Stephanie Wei Wang for many useful comments on earlier drafts.     

The Unintended Consequences of Education Policies on South African Participation and Unemployment

In the late 1990s, the South African Department of Education implemented two policies that were meant to reduce the large number of over‐aged learners in the school system: schools were no longer allowed to accept students who were more than two years older than the correct grade age, and students could not be held back more than once in each of four schooling phases. Our analysis uses school administrative data and household survey data to show that these policies coincided with a decrease in school enrolment of at least 400,000 and possibly more than 900,000 learners. These policies appear to have pushed many students into the labour market at earlier ages than was observed for previous generations, which explains much of the sudden increase in labour force participation and unemployment during this period. However, since these individuals would probably have entered the labour market sooner if not for their poor employment prospects, we argue that the resulting increase in unemployment signifies a more accurate reflection of disguised unemployment that already existed in the mid‐1990s rather than a deterioration of labour market conditions.     

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.     

Utilising a Demand-led Approach in a Local Labour Market

Traditional labour market activation policies have tended to be focused on labour supply and improving the opportunities for new entrants or re-entrants to obtain appropriate paid employment. This emphasis was encouraged in the 1980s and 1990s by shifts in the location and nature of employment (deindustrialisation), growing and persistent levels of unemployment and policy concerns with labour market disadvantage. More recently, the need to ensure international competitiveness, often by minimising local labour costs and enhancing labour flexibility, has been accompanied by a concern amongst employers at the impact of skill shortages. One response has been to shift the policy focus from supply to demand, essentially by seeking to understand the changing nature of local labour demand and by developing appropriate labour market initiatives. This paper analyses the case study provided by a labour market initiative in a regional labour market in New Zealand to assess the utility of such an approach. The Waitakere Employment and Skills Project (WESP) is a collaborative approach to labour demand, involving a number of economic development and local/national government agencies, as well as a university research team (including the author).     

Labour market performance in developing countries: A survey

Malfunctioning of labour markets is often given as a principal explanation of the widespread poverty in developing countries. Open urban unemployment and disguised unemployment in agriculture are generally considered symptoms of the poor performance of the decentralized system of allocation of labour time and skills in these countries.This survey leads us to a much less pessimistic view of labour market performance per se, though obviously imperfections do exist. On the one hand, the shifts of the labour force in response to shifts in demand have been noteworthy and suggest, at an aggregate level, rather impressive performance. On the other, a closer look at open unemployment, disguised unemployment, and other possible types of labour market malfunctions suggests that they may be less serious misallocations than they appear, and that only in part can such misallocations be attributed to poor labour market functioning.Though the labour market is the immediate locus of the problem of low and stagnant incomes of workers at the bottom of the distribution, the evidence suggests no causality in this association. There is no reason to presume that poverty is a manifestation of labour market failure.     

Unemployment information and wives’ labor supply responses to husbands’ job loss in Taiwan

Motivated by declining labor market opportunities in Taiwan, this study examines adjustments to wives' work patterns based on husbands' job loss for both unskilled and skilled labor families. Explicitly taking information acquired before job losses into account, married couples' dynamic labor supply equations are estimated by using a short pseudo-panel data set of Manpower Utilization Survey (MUS) in Taiwan during the period of 1993–2006. Our results indicate that the AWE in skilled families exhibits almost twice as big as those in unskilled families. When husbands' job loss is compounded with district- or industry-specific unemployment information, wives have slightly higher probabilities of labor force entry than those in the traditional model, and the probabilities increase with the length of observation. A comparison of the asymmetric response of the unskilled and the skilled wives suggests that facing husbands' job loss, unskilled wives respond to both economic downturns and upturns, but skilled wives only respond to economic downturns.     

ADAPTING TO NORTH-SOUTH TRADE:A GENERAL EQUILIBRIUM APPROACH TO POLICY OPTIONS

This paper develops a general equilibrium model of North-Southtrade with different wage setting regimes and a non-tradeablessector. Simulations confirm that substantial gains from tradeopenness can be accompanied by a significant deterioration inthe position of unskilled Northern workers. Increasing labourmarket flexibility will not correct this problem and protectionistmeasures, such as enforcing labour standards on the South, willreduce global income. Less conventional labour market policies,such as employment subsidies for unskilled workers, offer amore effective response, and one, moreover, which benefits workersin both the North and South.     

Black male unemployment

Public policies intended to raise the wages of unskilled workers, equalize educational opportunity, stabilize employment, and increase imports were sources of the growth of unskilled and, therefore, of black unemployment since 1950. The wartime wage-equalization policy and postwar minimum-wage policies raised the cost of unskilled labor relative to that of capital and of skilled labor. The Fed's inflationary full-employment policy between 1950 and 1970 reduced real interest rates relative to unskilled wages. Subsidies for higher education increased the supply of skilled labor, reducing its cost relative to that of unskilled labor. Trade liberalization increased imports of manufactured goods from developing countries, which displaced U.S. unskilled labor.     

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.     

Sectoral shifts and rates of profit

Summary In this paper the role of the capital market is analysed onthe base of a dynamic two-sector model of a closed economy. The way in which the allocation of investment is related to sectoral differences in the rate of profit and to diverging sectoral capital needs as well, turns out to be of great importance for the whole economy. Conclusions are drawn with regard to the long-run equality of profits after an initial disturbance. The role of the capital market is analysed too in connection with the functioning of sectoral labour markets. As far as unemployment and differing sectoral unemployment rates are concerned, the importance of the labour markets is obviously overwhelming. On that base it is possible to make some remarks on macroeconomic and sectoral investment policies with regard to employment.     

The Rising Supply of College Graduates and Declining Returns for Young Cohort: The Case of Korea

Abstract

This study analysed the effect of an increase in the supply of youth college graduates, in terms of the return on education. The rate of return on education in Korea substantially dropped from 1983 to 1994. Since then, however, the declining trend of the rate of return on education stopped and turned upward. The rate of return has declined especially for college graduates, and such a decline has been most prominent for young cohorts, among college graduates, since 1987. The observed trend of the rate of return appears to be related to the sharp increase of labour supply of college graduates since the mid 1980s.

The elasticity of substitution between education levels and age groups was estimated in this study, using a generalized demand-supply model. The effects of relative supply of college graduates (as a whole and by age) on the relative wages of college graduates by age were analysed under the assumption of constant skill-biased technological change. As it turned out, the relative college graduates’ labour supply of each age group had large bearings upon relative wages of each corresponding group, while the relative labour supply of all college graduates did not. It implies that labour is an imperfect substitute, not only between education levels but also between age groups.

Thus, as youth college graduates’ supply increases, there needs to be a corresponding demand increase for them, to avoid the drop in the wage or employment level for them. Therefore, to tackle with the issues of youth labour market, such as youth unemployment, separate policies targeting the youth group are called for.     

An Earned Income Tax Credit in the Netherlands: Simulations with the MIMIC Model

In recent policy discussions in the Netherlands, the Earned Income Tax Credit (EITC) has been put forward as an instrument to reduce the unemployment rate among low-skilled workers. Using MIMIC, CPB's applied general equilibrium model for the Netherlands, this article discusses the economic impact of different forms of the EITC. The analysis reveals that moderately targeting the EITC to the unskilled makes the instrument more effective in reducing unemployment. The targeting concept features decreasing returns, however. Indeed, it may be counterproductive if the EITC is targeted at a very small income range. Furthermore, targeting the EITC to the low skilled induces adverse effects on the quality and quantity of labour supply because it raises the marginal tax burden on medium-income workers.     

Labor market deregulation and globalization: empirical evidence from OECD countries

This paper empirically investigates the influence of globalization on various aspects of labor market deregulation. I employ the data set by Bassanini and Duval (2006) on labor market institutions in OECD countries and the KOF index of globalization. The data set covers 20 OECD countries in the 1982–2003 period. The results suggest that globalization did neither influence the unemployment replacement rate, the unemployment benefit length, public expenditures on ALMP, the tax wedge, union density nor overall employment protection. In contrast, protection of regular employment contracts was diminished when globalization was proceeding rapidly. In fact, domestic aspects, such as unemployment and government ideology are more important determinants of labor market institutions and deregulation processes in OECD countries than globalization. For this reason, working conditions of unskilled workers are not likely to deteriorate and the jobs of unskilled workers are not likely to disappear in the course of globalization. All this is, of course, not to insinuate that globalization has any benign influence on labor market institutions.     

The implications of South Africa's skills migration policy for country competitiveness

South Africa suffers from a shortage of skills, while at the same time having an excess of unskilled labour. The brain drain and the impact of HIV/Aids are threats to the current skills level in the labour force. Skilled workers generally create jobs for unskilled workers, and the level of skills in the labour force is an attraction for foreign investment. The new international migration policy imposes financial penalties and other restrictions on employers of foreigners with skills. The policy is detrimental to South Africa's competitiveness in the global economy and will deter investors and those needing to utilise skills not available in the South African labour market. A general immigration policy would be more appropriate to attract skilled foreigners to South Africa, where their skills can be absorbed into the labour force by supply and demand forces.     

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.     

Revisiting unemployment levels and trends in South Africa since the transition

Many recent studies compared the 1995 October Household Survey (OHS) with the latest available Labour Force Survey (LFS) to derive the unemployment ‘trends’ in South Africa since the transition, but this approach only gives a snapshot of unemployment at two points in time. Although the better approach is to examine all available labour surveys to derive the real unemployment trends during the period, this does not mean these trends are fully reliable and comparable, as the sampling method, weighting technique, questionnaire design and labour market status derivation methodology to define the unemployed are different across the surveys. In particular, the unemployment estimates in OHS 1995–99 and during the changeover between OHS and LFS in both narrow and broad terms increased rapidly. This paper aimed to address these issues, if possible, in order to improve the comparability and reliability of unemployment aggregates across the surveys.     

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.     

THE IMPACT OF HIGHLY ACTIVE ANTIRETROVIRAL TREATMENT (HAART) ON EMPLOYMENT IN KHAYELITSHA

This paper examines the impact of highly active antiretroviral treatment (HAART) on labour force participation of people living with HIV/AIDS in Khayelitsha, South Africa. Cox Proportional Hazard Models with stratum effects for three medical clinics, and Accelerated Failure Time Models with individual specific unobserved shared effects (frailty), are estimated for transitions from inactivity to unemployment, and transitions from unemployment into employment, using a longitudinal data set. The findings of this study indicate that HAART leads to greater activity in the labour market, but there was not a strong effect on re-entry into employment.