The productivity–wage relationship in South Africa: an empirical investigation

This article investigates the relationship between labour productivity, average real wages and the unemployment rate in South Africa at the macroeconomic level, using time‐series econometric techniques. There is strong evidence of a structural break in 1990, after which time all three variables rose rapidly. The break appears to have negatively affected the level of employment in the first instance, and subsequently fed through into per worker wages and productivity. A long‐term equilibrium (cointegrating) relationship was found between real wages and productivity, but unemployment was apparently unconnected to the system, which lends support to the insider–outsider theory. A long‐term wage–productivity elasticity of 0,58 indicates that productivity has grown more rapidly than wages, which is consistent with the finding that labour's share of gross output has been shrinking over the past decade. These trends may be explained plausibly by the adoption of job‐shedding technology and capital intensification.     

Labour's share in twentieth-century Sweden: a reinterpretation

The distribution of national income between capital and labour is a classical theme in political economy. This paper takes a long-run perspective to the issue and asks two questions: How did the distribution of income between capital and labour develop in Sweden from 1900 to 2000? And how can this development best be explained? It is shown that labour's share in Sweden in the 100 years from 1900 to 2000 saw three important shifts, and the three shifts are analyzed. Around 1920, there was a surge in labour's share as workers mobilised in trade unions and universal suffrage and the eight-hour working day in manufacturing strengthened the bargaining power of workers. From 1950 until the late 1970s, there was another period of an increasing labour share, when the welfare state expanded and trade unions were strong. Contra the well-known postwar wage moderation analysis, there was no wage moderation in Sweden during the 1950s and 1960s, but rather the opposite: wages increased faster than productivity which caused a redistribution from capital to labour and reduced income inequality. The third shift occurred around 1980 when labour's share started a continuous decrease, beginning with several devaluations intended to increase profitability and competitiveness of Swedish business.     

On the puzzling slowdown of wage and productivity growth in Taiwan: evidence from a comparison with South Korea

Since the early 2000s, the growth rate of real wages in Taiwan has been very low, even negative for high‐skilled workers. This paper sheds light on the potential causes of this puzzling development through a comparison of Taiwan's performance with that of South Korea. In many dimensions, most notably wages and labour productivity, both economies developed quite similarly between 1995 and 2001–02, but diverged thereafter. We relate the development of wages and labour productivity in the two economies to sectoral structural change and to sectoral differences in labour productivity growth, skills upgrading, and foreign trade.     

Engels’ pause: Technical change, capital accumulation, and inequality in the british industrial revolution

The paper reviews the macroeconomic data describing the British economy from 1760 to 1913 and shows that it passed through a two stage evolution of inequality. In the first half of the 19th century, the real wage stagnated while output per worker expanded. The profit rate doubled and the share of profits in national income expanded at the expense of labour and land. After the middle of the 19th century, real wages began to grow in line with productivity, and the profit rate and factor shares stabilized. An integrated model of growth and distribution is developed to explain these trends. The model includes an aggregate production function that explains the distribution of income, while a savings function in which savings depended on property income governs accumulation. Simulations with the model show that technical progress was the prime mover behind the industrial revolution. Capital accumulation was a necessary complement. The surge in inequality was intrinsic to the growth process: technical change increased the demand for capital and raised the profit rate and capital’s share. The rise in profits, in turn, sustained the industrial revolution by financing the necessary capital accumulation. After the middle of the 19th century, accumulation had caught up with the requirements of technology and wages rose in line with productivity.     

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.     

A GROWTH MODEL FOR SOUTH AFRICA

We examine the South African growth experience during 1960‐2005 using an intertemporal growth model. The model combines old growth theory investment dynamics and new growth theory endogenous productivity growth. The consumption and investment decisions are intertemporal and assume open capital markets. Structural change is captured by separating the traded and nontraded sectors, and sectoral productivity growth is determined in a barriers‐to‐growth framework. Calibration of the model shows how the growth experience combines neoclassical convergence, technology spillovers with barriers and productivity‐investment interaction. Counterfactual analysis shows the growth costs of sanctions and protectionism. The suggested model is an alternative to existing growth modelling in South Africa, in which investments are short‐sighted and productivity growth is imposed exogenously.     

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.     

Investments in fixed assets and human capital: Two interconnected drivers of socioeconomic growth

This paper highlights the great importance of increasing the share of the knowledge economy in the GDP, which is currently 13% in Russia, compared to 30% in Western Europe and the United States. The accelerated growth in the fixed asset and investment in the knowledge economy at levels of 20–25% and 20%, respectively, by 2020 have been justified. Attention is drawn to the inadequately low, declining level of investment in healthcare in Russia, the GDP share of which is twice as low as in 25 developed countries and 1.5 times lower than in 30 developing countries, which is reflected in the increased mortality rate. The WHO data on the average life expectancy of men has been analyzed; it amounts to only 58.7 years, which is below the age of retirement in Russia. In developed countries, the average life expectancy of men is 13–14 years higher. It has been concluded that, in order to tackle the long-term challenges in human capital, it is necessary to boost labor productivity and increase wages by reducing the groundless differentiation of the population’s income to the level of Western European countries.     

Pro-poor microcredit in South Africa: cost-efficiency and productivity of South African pro-poor microfinance institutions

This article compares the performance of selected South African microcredit non-governmental organisations (NGOs) that have a poverty-alleviation focus against various benchmarks drawn from the MicroBanking Bulletin. Donors, governments and many analysts regard sustainability as the benchmark of microfinance institutions' (MFIs) performance. However, the most relevant question is whether microcredit NGOs are doing as well as they can in their context. Of particular contextual importance is income inequality in a society. South Africa has the world's second worst income inequality, after neighbouring Botswana. This creates a situation in which microcredit NGOs must recover ‘First World’ costs, particularly salaries, from revenues based on clients who can only afford loans on a par with Third World countries. Compounding this situation are structural obstacles to microenterprise in South Africa, as well as obstacles to productivity in microcredit NGOs. Taken together, this creates a ‘salary burden’ for South African microcredit NGOs, which is the highest in the world according to relevant benchmarks. South African MFI managers face significant obstacles to improving productivity to compensate for the divergence between staff and client living levels. These include an inadequate skills base, the small scale of the market, rapid labour turnover, and limited resources for capacity development. South African MFIs face the options of moving upmarket (which many have done), adopting methodological innovation or new product development, or closure. Of these, there is a strong argument to be made for supported savings and credit approaches as an alternative to NGO-based microcredit. Such an approach has the advantages of greater voluntary input and social capital formation.     

Economic Convergence in the African Continent: Closing the Gap

The paper attempts to analyse the conditional β‐convergence and its sources for 32 African countries over the period 1960‐2008. The augmented Solow model with both gross domestic product (GDP) per worker and per capita income is estimated using the dynamic system generalized methods of moments (GMM) technique with the panel data. This is the first study on the sources of conditional β‐convergence for African countries. According to the results of the augmented Solow model, income convergence rates are lower than those of GDP per worker. Moreover, total factor productivity convergence, human capital convergence and capital labour convergence are contributing towards the convergence of GDP per worker in Africa. This means that growth in the poorest African countries is being augmented by “catch‐up factor,” which is good news for them. However, convergence in terms of GDP per worker is not being fully translated into income per capita convergence. The demographic structure in the African continent with its record of persistent population growth has played an important role in lowering the income convergence of its countries.     

UNEMPLOYMENT AND RESERVATION WAGES IN WORKING-CLASS CAPE TOWN

Are the unemployed in South Africa ‘pricing themselves out of the labour market;’? This paper explores this proposition through an analysis of reservation wages in Cape Town's working class district of Khayelitsha/Mitchell's Plain. It argues that reservation wages are not out of line with predicted wages. This, in turn, suggests that unemployment in the area is not attributable to job seekers having unrealistically high reservation wages.     

Internal Migration of Blacks in South Africa: An Application of the Roy Model

This study investigates the internal migration of black males in South Africa over the period after the formal end of Apartheid using the 1996 census data. The two issues of our primary interests are the following: (i) whether migration patterns of black individuals are consistent with the income‐maximising hypothesis as related to the destination choice; and (ii) whether the redistribution of human capital is detected in internal migration. The results from conditional logit regressions on choices among individuals in 318 districts show that individuals prefer districts with higher expected wages, conditional on other regional characteristics. In addition, there exist differing preferences on the share of population with post‐secondary education by individuals with commensurate educational attainments. Black individuals with post‐secondary education tend to migrate into areas with a higher share of population with post‐secondary education and vice versa, which confirms the divergence of human capital levels across districts.     

THE EMERGENCE OF INSTITUTIONALISED SOCIAL DIALOGUE IN SOUTH AFRICA

This paper looks at the conceptual framework of social dialogue, investment in social capital and some international definitions of social dialogue as background to developments in this sphere in South Africa. Social dialogue is viewed as a mechanism for problem‐solving and reducing transaction costs. The paper considers the ramifications of the 1979 Wiehahn Report on labour relations, as well as the nature of social dialogue in the apartheid era and its workplace origins. Institutionally, the stepping stones to the emergence of the NEF and Nedlac are discussed, together with some of the issues involved in, and formal outcomes of, Nedlac over the past eleven years in public policy choices. It closes with an evaluation of institutionalised social dialogue in South Africa and its future. “With the transition to non‐racial democracy in 1994, it became the task of an ANC‐led government to attempt to resolve the economic contradictions that apartheid had created. To achieve this requires massive economic and social changes, great programmes of investment and structural change. It is necessary to create the vital human capital needed at every level, from rudimentary literacy to the highest ranks of science and technology; to overcome enormous deficiencies in all forms of social infrastructure, including housing, schools, health, and transport; to return land to the black population and restore ravaged rural areas; to expand black ownership of mining, industry, commerce, and finance; and to diminish enormous inequalities in income and wealth. The new regime has made a promising start, but South Africa's past will exert a powerful influence on its present and future for a long time to come, and these huge tasks will not be swiftly or easily accomplished.” Charles Feinstein (2005 )     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

A Tale of Two Peripheries: Real Wages in Denmark and New Zealand 1875–1939.

Abstract

Denmark achieved dramatic real wage growth after 1870, compared to other European economies and to those of the New World. The ingredients of Denmark's success are gauged by comparison with one its major competitors in the British food-products markets, New Zealand. Faster Danish productivity growth explains only part of Denmark's faster real wage growth. Open economy forces, chiefly international capital flows before 1913, and especially Danish trade union militancy around the end of World War I, influenced income distribution and especially favoured wages over property income in Denmark. Denmark's GDP per capita equalled New Zealand levels between the world wars but her real wages surged past those of New Zealand as distributional shifts favoured Denmark's wage earners.     

International Trade and R&D Investment: Evidence from Chinese Manufacturing Firms

A current concern for China's long‐term growth prospect is whether China can become an innovative economy and achieve industrial upgrading to compensate for the gradually declining competitiveness resulting from low‐cost labor. The present study examines this issue by exploring how trade participation impacts on the R&D investment of manufacturing firms through various channels. Merging China's Annual Manufacturing Survey Dataset and the Chinese Customs Dataset allows us to study such a relationship at the individual firm level. The empirical results suggest that channels such as geographical diversification of export markets, share of imports from high‐income countries, average unit value of imports, number of intermediate goods and capital goods imports, and the trade regime are significant factors that influence firm‐level R&D investment. The study discusses the policy implications of the empirical findings in relation to industrial and trade policies that may be potentially beneficial for China's transition towards an innovative economy.     

Off‐farm wage returns to education: Evidence from Lesotho

This article presents estimates of off‐farm wage returns to education in rural areas of Lesotho. Results from a sample survey conducted in the northern Lowlands and Foothills of Lesotho indicate that returns to education are relatively higher for people wage‐employed in Lesotho than those wage‐employed as migrants in South Africa. For people working within Lesotho, education appears to have a significant and positive effect on off‐farm wages. Most people working within Lesotho are employed as teachers, nurses and civil servants and these job categories require an educated labour force. For people wage‐employed in South Africa, education appears not to have a significant effect on off‐farm wages. Most men working in South Africa are employed as labourers in mines while women working in South Africa are employed as domestic servants.     

China＇s Pattern of Growth： Moving to Sustainability and Reducing Inequality

I. Introduction China’s gross domestic product (GDP) growth has averaged 9.4 percent per annum since1978. As a result of this impressive growth, millions of people were lifted out of poverty. Economic reforms implemented over the last 25 years have certainly been instrumental in the remarkable growth performance, leading to higher productivity growth than in the pre- reform period. Nevertheless, it is widely agreed that China’s growth during this period has been resource intensive, drawing…     

Imported Capital Goods and Manufacturing Productivity: Evidence from Botswana's Manufacturing Sector

This article examines the effects of imported capital goods on manufacturing productivity growth in Botswana. Despite consistent efforts aimed at diversification, Botswana's economy has remained heavily dependent on diamond exports, and the country's productivity remains a point of concern. The ability to apply foreign technologies to increase productivity and spur diversification is limited by the foreign exchange gap. This study uses an imported input growth model to analyse how the importation of capital goods contributes to enabling productivity growth and export diversification. With a panel of 340 manufacturing firms, the study also analyses the effects of imported capital goods on firm productivity growth and skills development. The results show that imported machines and equipment have increase manufacturing productivity after 1‐2 years following the investment. Additionally, foreign‐owned firms were found to enjoy more productivity growth than their domestic counterparts.