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

Literature › Works

Development Policy Research Unit (DPRU) (2009). Analysing Wage Formation in the South African Labour Market: The role of Bargaining Councils. DPRU Policy Brief Series, PB 09-25. Development Policy Research Unit, School of Economics, University of Cape Town.


Type	report
Scope	Post-1994 South African economy
Method	econometric
Period studied	1995–2005
Regions	South Africa
Themes	labour markets wages, unions strikes, transition post apartheid, inequality poverty unemployment
Citation key	`dpru2009`

Argument¶

The brief assesses whether membership of or coverage by bargaining councils (industrial councils before 1995) yields a wage premium distinct from union membership, as part of the debate over labour-market and wage inflexibility. It finds coverage rose from 15 to 32 percent of formal workers between 1995 and 2005, driven by the public sector (PSCBC), while private-sector councils stagnated or declined. Multivariate and quantile estimates show a robust union wage premium in both years, a bargaining council premium in 1995 only for non-unionised workers, and a large premium in 2005 only for public-sector councils. It concludes that the claim of rigidity from extensions of agreements may be overstated. Its content is mostly post-1994; the apartheid-era material is a brief historical background.

Evidence and method¶

Estimates of council coverage built from agreements and other sources, matched to the 1995 October Household Survey and the 2005 Labour Force Survey; descriptive mean earnings comparisons, multivariate wage regressions and quantile regressions; secondary evidence from Godfrey et al (2006) on extensions and from a study of exemptions. The brief summarises an underlying paper by 'the authors', who are not named in the text.

Findings¶

Extensions of agreements to non-parties cover only a small share of formal workers, so rigidity from extensions may be overstated. (p. 4)

of the estimated 32,6 percent of formally employed workers (excluding all managers and professionals in the private sector) covered by bargaining councils, only 4,6 percent were covered by extensions to agreements.
Public-sector council growth contrasts with private-sector stagnation or decline. (p. 4)

bargaining councils within the private sector have at best stagnated and at worst are in secular decline.
In 1995, a council premium of about seven percent applied only to workers without union membership. (p. 5)

Bargaining council members were likely to earn almost seven percent more than those not covered by a wage agreement.
In 1995 the union premium was far larger than the council premium. (p. 5)

workers that belonged to a union, but not a bargaining council, enjoying a union wage premium of almost 20 percent.
In 2005 the council premium was confined to public-sector councils (28 percent), with none for private-sector councils. (p. 6)

Membership of a private sector bargaining council did not yield any premium, but membership of the public sector bargaining councils was associated with a wage premium of 28 percent.
Quantile estimates show the public-service council premium varied across the wage distribution in 2005. (p. 6)

In 2005, membership of a public service bargaining council offered a wage premium of between 18 percent and 34 percent.
Unions raised wages across the distribution and reduced wage inequality, especially in the bottom half. (p. 7)

union membership not only awarded wage premia across the wage distribution, it also served to reduce wage inequality and particularly so in the bottom half of the wage distribution.
Before 1994 public-sector pay was set by a commission, with consultation only of white staff associations. (p. 2)

Before 1994, remuneration in the public sector was set by a commission. No formal negotiations took place, but staff associations representing white workers in the public service were consulted.