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Micro-evidence on day labourers and the thickness of labour markets in South Africa

Literature › Works

P.F. Blaauw; W.F. Krugell (2012). Micro-evidence on day labourers and the thickness of labour markets in South Africa. ERSA Working Paper 282. Economic Research Southern Africa.
Type working paper
Scope Post-1994 South African economy
Method econometric
Period studied 2005–2007
Regions South Africa (national), Gauteng, Western Cape, KwaZulu-Natal, metropolitan areas
Themes inequality poverty unemployment, labour markets wages, demography urbanisation, education human capital, methods data sources
Citation key blaauw2012

Argument

The paper asks whether the thickness of urban labour markets raises the earnings of South African day labourers, using a Smith-Marshallian agglomeration framework (Helsley and Strange; Duranton). Using a 2007 countrywide survey, it regresses log weekly earnings on individual traits and location measures such as a metro dummy and occupation density. It finds that education from matric upward, vocational training, skilled work and repeat hiring by the same employer are associated with higher earnings. It also finds that the metro premium and specialisation in metros are associated with higher earnings. It concludes that people-based policies (education and training) work best in thick urban labour markets and favours urbanisation and mobility over spatially targeted interventions.

Evidence and method

A countrywide survey of day labourers at roadside hiring sites, fieldwork February-November 2007, preceded by a 2005-06 count of sites and labourers. 3,812 usable questionnaires were obtained (about 9% proportional sample). District-council population density comes from Global Insight's Regional Economic Explorer. The 2004 Pretoria survey informed the questionnaire. Principal component and cluster analyses were used to group job types.

Findings

  • Scale of the day-labour phenomenon: roughly a thousand hiring sites and tens of thousands of mostly black African men. (p. 3)

    There are nearly 1,000 places in South Africa where a minimum of 45,000 mostly black African men stand and wait to be picked up for day labour

  • The sample is overwhelmingly male and black African. (p. 8)

    This paper uses the responses of 3,812 day labourers to the survey. Of these, the majority is male (96%) and Black (92%).

  • Average weekly earnings are low and volatile between good and bad weeks. (p. 9)

    For the group as a whole, earnings in a good week averaged R386 and R163 in a bad week.

  • Repeat hiring by the same employer is more common in metros, consistent with better matching in thick markets. (p. 10)

    in metro areas 22 per cent of day labourers are often hired by the same employer for more than three days, compared to 13 per cent in other areas

  • Earnings differ markedly across provinces, with the Western Cape, Gauteng and KwaZulu-Natal above average. (p. 10)

    Day labourers in the Western Cape, Gauteng and KwaZulu-Natal receive above average earnings in a good week

  • The fullest individual-level model has modest explanatory power. (p. 12)

    Model 4 explains approximately 29% of the variance of earnings in a good week.

  • Skilled day labourers in metros earn more, per the interaction term. (p. 13)

    This means that day labourers in metropolitan areas that do skilled jobs earn more.

  • Competition among labourers in big cities dampens earnings: occupation density in metros is negatively associated with earnings. (p. 13)

    However, in metropolitan areas greater occupation density is also negatively associated with earnings

  • Education raises earnings only from matric upward. (p. 14)

    The results show that education is positively associated with earnings once workers have a matric

  • Hiring by the same employer is consistently associated with higher earnings. (p. 14)

    Throughout, the day labourers who were hired by the same employer more often received higher earnings.

  • Authors' headline conclusion on specialisation in thick metropolitan labour markets. (p. 14)

    Thus it seems that the thicker metropolitan labour market allows workers to become more specialised