Wages,Productivity and Labour's Declining Income Share in Post‐Apartheid South Africa

The Marikana incident in 2012, as well as the protracted strikes by platinum miners, metal and postal workers in 2014 suggest that not all is well in the South African labour market. Even though those in employment are better off than the unemployed poor, macroeconomic data indicate that labour's share in gross value added has declined significantly during the first two decades following the first democratic election in 1994. A falling share of labour in income also means, by definition, that average labour productivity growth outstrips real wages growth. Data for South Africa suggest that productivity has indeed increased faster than wages in South Africa. This article argues that financialisation and more aggressive returns‐oriented investment strategies applied by for instance large investment institutions translated into higher required rates of return on capital, which in turn caused an increased implementation of capital‐augmenting labour‐saving technology that reduces labour's share in income.     

Innovation in Africa: Why Institutions Matter

Given the role that innovation plays as an engine for economic development, we examined the enabling factor of institutions in Africa. Particularly, attention was given to determining the equivalent effects of institutional development on innovation. A sample of 40 African countries over the period 1996‐2012 was employed, and our baseline equation was estimated using the system generalised method of moments (SGMM) estimation technique. The empirical result reveals that government effectiveness and regulatory quality are two institutional measures that have the most equivalent impact on innovation. The extent of impact is an indication that institutions matter, especially when considering innovation in Africa. Therefore, to advance the rate of innovation in Africa, improving frameworks to drive regulations and enhance government effectiveness is a necessary instrument. Having these in place, Africa will be able to catch up with advanced economies.     

A Tale of Two Countries and Two Stages: South Africa,China and the Lewis Model

The paper compares the economic progress of two countries, South Africa and China, in relation to the Lewis model. These economies are chosen because they have interesting similarities and also interesting differences. At the start of economic reform in China and with the advent of democracy in South Africa, both countries had surplus labour: they were at the first, labour-surplus, stage of the Lewis model. It is shown that, since then, South Africa has continued to experience surplus labour: the unemployment rate has risen. By contrast, China’s labour market is shown to have tightened, and there is evidence that China has entered the second, labour-scarce, stage of the Lewis model. The difference lies in their growth rates. There are sections explaining why the South African economy has grown slowly and why the Chinese economy has grown rapidly, in relation to the growth of their labour forces. The Lewis model provides an enlightening framework for explaining how widely the fruits of economic development can be shared.     

Determinants of return migration intentions: Evidence from Zimbabwean migrants living in South Africa

This paper uses a dataset of Zimbabwean migrants living in South Africa to examine the determinants of the probability of their returning to their country of origin. It analyses migrants' return migration intentions using a logistic regression that examines 10 demographic and socioeconomic factors. Six factors – reason for migrating, the number of dependants supported in the home country, the level of education, economic activity in the host country, the level of income and the duration of stay in the host country – are found to be statistically significant determinants of the return migration intentions. The main policy implication of these findings is that the chances of attracting back skills are high if political and economic stability can be achieved.     

Inflation in South Africa: An Assessment of Alternative Inflation Models

We consider the relative empirical performance of a range of inflation models for South Africa. Model coverage is of Phillips curve, New Keynesian Phillips curve, monetarist and structural models of inflation. Our core findings are that the single most robust covariate of inflation is unit labour cost. We further decompose unit labour cost into changes in the nominal wage and real labour productivity. The principal association is a strong positive relationship between inflation and nominal wages, while improvements in real labour productivity report only a relatively weak negative association with inflation. Supply‐side shocks also consistently report an association with inflation. As to demand‐side shocks, the output gap does not return a robust statistical association with inflation. Instead, it is growth in the money supply and government expenditure which return robust and theoretically consistent associations with inflationary pressure.     

Job Search and the Measurement of Unemployment in South Africa

We interrogate the distinction between searching and non‐searching unemployment in South Africa using data from the first national panel survey that tracks the individual. In particular, we test whether the non‐searching unemployed display a weaker commitment to the labour market than the searching unemployed, and we investigate what counts as search activity. We find that over the panel, the search status of the unemployed does not predict their subsequent employment status, a result that is robust also for subsamples that vary by age cohort, gender and location. Moreover, social networks are the most important job‐finding strategy of the employed. These findings challenge the exclusion of the non‐searching unemployed from the measure of “genuine” work seekers.     

Policy Determinants of School Outcomes under Model Uncertainty: Evidence from South Africa

In this paper, we assess the determinants of secondary school outcomes in South Africa. We use Bayesian model averaging techniques to account for uncertainty in the set of underlying factors that are chosen among a very large pool of explanatory variables in order to identify the subset of explanatory variables most strongly associated with the dependent variable. Our analysis indicates that the socio‐economic background of pupils, demographic characteristics such as population groups (Black and White), as well as geographical locations account for a significant variation in pupils’ achievement levels. We also find that the most robust policy determinants of pupils’ test scores are the availability of a library at school, the use of IT in the classroom as well as school climate.     

Microeconomic determinants of spatial mobility in post-apartheid South Africa: Longitudinal evidence from the National Income Dynamics Study

Migration, important for many areas in development, is strongly related to employment. Debate over labour supply in developing countries frequently hinges on labour migration. This paper examines the determinants of spatial mobility of working-age adults in South Africa, using the first nationally representative longitudinal survey – the National Income Dynamics Study – for 2008–10. The paper outlines the unique advantages of these data for the study of individual mobility – data that open the possibility of a new research project. Specifically, it asks how policy-relevant programmes, such as social transfers and housing assistance, affect migration. This paper finds, on balance, that transfers are negatively correlated with subsequent relocation. Previous migration is also predictive of future migration and both are tightly related to attrition, while there is an increasing but strongly non-linear relationship between income and mobility. Further, we highlight potential pitfalls – including attrition, and definitional difficulties – in the study of migration and illustrate possible solutions.     

Determinants of Remittances: Recent Evidence Using Data on Internal Migrants in Vietnam*

The present paper examines the determinants of remittance behavior for Vietnam using data from the 2004 Vietnam Migration Survey on internal migrants. It considers how, among other things, the vulnerability of a migrant's life at the destination, their link to relatives back home, and the time spent at the destination affect remittances. The paper finds that migrants act as risk‐averse economic agents and send remittances back to the household of origin as part of an insurance exercise in the face of economic uncertainty. Remittances are also found to be driven by a migrant's labor market earnings level. The paper highlights the important role of remittances in providing an effective means of risk‐coping and mutual support within the family.     

Does Human Capital Protect Workers against Exogenous Shocks? Evidence from Panel Data on South Africa during the 2008‐2009 Crisis

The financial and economic crisis of 2008 and 2009 took a heavy toll on the South African economy. The economy contracted for the first time since 1998 and entered recession during the fourth quarter of 2008. The gross domestic product contraction was soon transmitted to the labour market. Between the second quarters of 2008 and 2009, employment fell by 3.8%. However, not all individuals were hit with the same intensity. Using panel data from a quarterly labour force survey unique in the African context, we find that human capital (i.e. education as years of schooling and workforce experience) provided a buffer against the shock. After controlling for observable characteristics, education and experience showed the potential to entirely offset the effect of the recession on the likelihood of employment. This has important policy implications, as it strengthens the case for strategic investments in human capital and helps identify the unskilled as having the greatest need for social safety net interventions during a recession.     

Migration constraints and development: Hukou and capital accumulation in China

Rural–urban migration flows are a crucial corollary of economic development. The adverse or beneficial effects of internal migration, for sending as well as receiving areas, and the definition of optimal migration policies, have remained much discussed issues since the seminal works of Harris and Todaro (1970). This debate is especially acute in China where the “household registration system” (hukou) acts as a strong constraint on individual migration. This paper aims to assess the consequences of hukou through a simple model of a developing dual economy with overlapping generations. Contrary to existing studies focused on the contemporaneous allocation of economic resources, it deals with the dynamic consequences of migration flows and migration policies. It shows that, in fairly general circumstances, hukou-related migration constraints can actually hasten development, understood as the transfer of the labor force to the modern sector, driven by capital accumulation. The hukou system could thus be one of the causes of the extremely high Chinese saving rate and of the high pace of Chinese development. Insights from the model are confronted with stylized facts from the Chinese development, and theoretical results are especially consistent with the effects of the 2001 “towns and small cities” reform.     

One Kind of Freedom: Poverty Dynamics in Post-apartheid South Africa

A 1993 South African living standards survey documented the legacy of apartheid in the form high levels of inequality and human insecurity. Drawing on a 1998 re-survey of households in the 1993 study, this paper explores whether this legacy has been superseded, or whether apartheid's end has been only one kind of freedom that has left households in a poverty trap from which they cannot escape. After proposing a theoretically grounded dynamic poverty typology that distinguishes stochastic from structural poverty transitions, the paper goes on to estimate that significant numbers of the South African poor are potentially trapped in a structural poverty trap and lack the means to escape poverty over time.     

An Index‐Based Model for Determining the Investment Benchmark of Renewable Energy Projects in South Africa

In a globalised world, financial markets observe the optimal level of asset allocation and returns based on risk inherent in the economies. Whether public or private investors, they need to have an optimal return on their investment given the finite resources. In relatively new sectors like grid‐connected renewable energy, many investors face difficulty in assessing proper return, making them more averse to financing such projects, affecting transborder project development opportunities. In developing countries like South Africa, which has tremendous potential for renewable energy projects, an arbitrary choice of the required rate of return for project evaluations can negatively affect funding decisions. This paper explores an index‐based model to make fair estimates of the required equity benchmark internal rate of return (IRR) using financial markets observation for renewable energy projects in South Africa. The index‐based model is parsimonious and captures common macroeconomic factors. More specifically, it provides a simple and effective mechanism to calculate IRR for renewable energy projects given different gestation periods.     

Estimating a poverty line: An application to free basic municipal services in South Africa

One of the key interventions aimed at improving the welfare of South African households has been local government's provision of a package of free basic municipal services to poor households. It is, however, not completely clear how different municipalities identify households that are eligible for these services. Evidence suggests that many municipalities currently provide services to all households with a monthly income of less than R1500 a month. This ‘free basic services poverty line’ is, however, low in comparison with a number of unofficial poverty lines used by policymakers and researchers in South Africa. This paper considers the impact of increasing the value of the free basic services line, in terms of the additional share and number of households eligible for support and the additional financial cost. We find that urban municipalities would face the steepest increases in their free basic services budgets with any potential increase in the free basic services poverty line.     

The relationship between financial sector development and savings mobilisation in South Africa: An empirical study

This article examines the link between financial sector development and savings mobilisation in South Africa for the period 1980–2012. Taking the life-cycle hypothesis as our theoretical background and using Johansen co-integration that allows for hypothesis testing, the empirical results revealed a long-run relationship between savings, interest rates and financial sector development. We find an inverse relationship between the interest rate and savings, implying that South Africans are net borrowers because the income effect overwhelms the substitution effect. This in part explains the low level of savings in recent time. Important policy lessons for boosting the national savings rate are discussed.     

Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures

Empirical explorations of the growth and aggregate productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. This paper, utilizing panel data for South African manufacturing over the 1970–2000 period, and a range of 19 infrastructure measures, explores the question of infrastructure endogeneity in output equations. The paper develops an instrumentation strategy generalizable to other contexts. Controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of economically meaningful magnitudes.