Analysing Wage Formation in the South African Labour Market: The Role of Bargaining Councils

Literature › Works

Haroon Bhorat; Carlene van der Westhuizen; Sumayya Goga (2007). Analysing Wage Formation in the South African Labour Market: The Role of Bargaining Councils. Development Policy Research Unit (DPRU), School of Economics, University of Cape Town. University of Cape Town.

Type	working paper
Scope	Post-1994 South African economy
Method	econometric
Period studied	1924–2005
Regions	South Africa
Themes	labour markets wages, unions strikes, origins segregation, inequality poverty unemployment, methods data sources, transition post apartheid
Citation key	bhorat2007

Argument

The paper estimates the wage premium attached to industrial and bargaining council coverage, separately from union membership, for 1995 and 2005. Section 2 gives a short history of institutionalised wage formation from the 1924 Industrial Conciliation Act through the dual racial system, the 1970s-80s African union challenge and the post-1994 Labour Relations Act. The empirical sections build council coverage estimates from household surveys and council records, then use Heckman-corrected OLS and quantile regressions. They find that private-sector councils shrank and gave no premium by 2005, while the new public-sector councils drove a rise in coverage and a large premium. The union premium stayed strong throughout.

Evidence and method

1995 October Household Survey and September 2005 Labour Force Survey, matched to coverage built from Godfrey's Industrial Council Digest (1992), the AWARD database, Government Gazette extension notices and council websites. Also Godfrey et al. (2006) on extensions and exemptions, legislation, and secondary literature on the history of industrial relations.

Findings

• The 1924 Act's definition of 'employee' excluded pass-bearing Africans, creating a racially dual system of industrial relations. (p. 5)

  it excluded pass-bearing Africans from the definition of an ‘employee’, meaning that these workers were excluded from representation on industrial councils and also excluded from the agreements reached by industrial councils.

• Craft unions used the council system to entrench the skilled-unskilled wage gap, as the 1935 commission found. (p. 7)

  the huge gap between skilled and unskilled wages in South Africa, and the way in which craft unions had used the Industrial Council system to entrench this gap.

• After Wiehahn, African unions stayed out of councils and preferred plant-level bargaining. (p. 9)

  African trade unions were reluctant to register and increasingly pursued plant-level bargaining outside the industrial council system

• Council coverage of formal employment rose from 15% to 32% between 1995 and 2005 but the rise was due to public-sector councils. (p. 23)

  in 1995, 15 percent of those in formal employment (almost 1,2 million workers) were covered by bargaining council agreements. This more than doubled to 2,5 million workers or 32 percent

• Private-sector council coverage was stagnant or declining, at roughly 1 million workers. (p. 32)

  bargaining councils within the private sector have at best stagnated and at worst are in secular decline.

• Extensions to non-parties covered very few workers, weakening the rigidity argument. (p. 18)

  of the estimated 32,6 percent of formally employed workers (with the total excluding all Managers and Professionals in the private sector) covered by bargaining councils, only 4,6 percent were covered by extensions to agreements.

• In 1995, non-unionised council members earned about 7% more, while union members outside councils earned almost 20% more. (p. 44)

  bargaining council members were likely to earn almost seven percent more than those not covered by a wage agreement. Membership of a union in 1995 provided a much larger wage premium

• In 2005 private-sector council membership gave no premium, while public-sector council membership gave about 28% and union membership about 23%. (p. 46)

  public sector workers did enjoy a wage premium due to their membership of the public sector bargaining councils, of about 28 percent. The union wage premium for 2005 according to this estimation is about 23 percent.

• Union premia are largest at the bottom of the wage distribution, and unions reduce wage inequality, especially in the bottom half. (p. 56)

  in both years union membership not only awarded wage premia across the wage distribution, it also served to reduced wage inequality and particularly so in the bottom half of the wage distribution.

• Mean-earnings comparisons show no council advantage in 1995 or 2005 overall. (p. 33)

  In both years, the difference in the mean earnings of employees inside and outside the bargaining council environment is not statistically significant.