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Wage Effects of Unions and Industrial Councils in South Africa

Literature › Works

Kristin F. Butcher; Cecilia Elena Rouse (2001). Wage Effects of Unions and Industrial Councils in South Africa. Industrial and Labor Relations Review.
Type working paper
Scope Post-1994 South African economy
Method econometric
Period studied 1924–1995
Regions South Africa
Themes unions strikes, labour markets wages, inequality poverty unemployment, methods data sources, transition post apartheid, business and state
Citation key butcher2001

Argument

Butcher and Rouse ask whether South Africa's union wage premium is abnormally high and whether the industrial council system extends union wages to nonunion workers. Using the 1995 October Household Survey, controls for industry and occupation, and household fixed effects, they estimate union premia of about 20 percent for Africans and 10 percent for Whites, far below earlier estimates. They build an industrial-council coverage measure from Godfrey's Digest. It shows a 6-10 percent premium for African nonunion workers, a union gap that persists inside the councils, and a total union premium inside the councils that is similar to the premium outside. They conclude that councils cover too few workers to explain mass unemployment, and suggest that monopsony-type models may be relevant to policy.

Evidence and method

1995 October Household Survey (over 130,000 individuals in 29,000 households; African and White workers aged 15-65 with non-missing monthly income; 15,358 African and 5,286 White observations in the main samples). Industrial council coverage constructed from Godfrey's 1992 Industrial Council Digest (agreements published in the Government Gazette), matched on magisterial district, industry and occupation. 1993 Living Standards Measurement Survey (SALDRU) for comparison with Schultz and Mwabu. Secondary sources on industrial relations (Bendix, Standing, Sender and Weeks, Boccara and Moll).

Findings

  • Headline estimates of union and council premia. (p. 2)

    We estimate union premia on the order of 20 percent for African workers and 10 percent for White workers. We also find that African nonunion workers who are covered by industrial council agreements receive a premium of 6-10 percent

  • Raw African union gap falls sharply with controls. (p. 19)

    Union workers earn approximately 62 percent more than nonunion workers.

  • Adding industry controls reduces the African gap to about 18 percent. (p. 20)

    Adding these controls decreases the estimated union gap to about 18 percent, a magnitude similar to that estimated by Dabalen (2000).

  • The difference from Schultz and Mwabu arises from missing industry and occupation controls (for Africans) and time changes (for Whites). (p. 21)

    One reason for the differences in our results is that their highlighted estimates do not control for the workers’ industry and occupation.

  • Household fixed effects give similar premia, so selection does not explain the gap. (p. 23)

    The estimated union wage gap of 20 percent for Africans is very close to the 18.4 percent estimated in column (5).

  • Union premium declines up the predicted-income distribution, so unions compress inequality. (p. 25)

    the union wage gap among African workers in the fourth and fifth quintiles are 14 percent and 7 percent respectively compared to a premium of between 19-33 percent among the lower quintiles.

  • Council coverage raises African nonunion pay but not White nonunion pay. (p. 26)

    African nonunion workers covered by an industrial council agreement earn about 10 percent more (or 6 percent more if adjusted, as noted in footnote 32) than those not covered by an industrial council agreement

  • Total union premium inside councils matches that outside, which implies plant-level supplementary bargaining. (p. 27)

    This result suggests that the unions to which African workers belong target a particular wage increase, negotiate for a minimum wage standard within the industrial council setting and then bargain for supplemental awards

  • Council premium is largest at the bottom for Africans, contrary to expectations of skilled-worker focus. (p. 27)

    the industrial council premium decreases across the income distribution for African workers, from a high of 43 percent for the first quintile to a low of a 21 percent penalty for quintile 5.

  • Council coverage is small and exemptions are common, limiting their bite. (p. 11)

    Of employers subject to an industrial council agreement, 17.3 percent had applied for and been granted an exemption (most of which were exemptions from portions of the agreement)

  • Councils cover too few workers to be the main driver of unemployment. (p. 32)

    the proportion of workers who are affected by industrial council agreements is too small to be the primary reason for the vast unemployment numbers in South Africa.