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A Firm Level Analysis of Trade, Technology and Employment in South Africa

Literature › Works

Lawrence Edwards (2002). A Firm Level Analysis of Trade, Technology and Employment in South Africa. TIPS 2002 Annual Forum, Glenburn Lodge, Muldersdrift. Trade and Industrial Policy Strategies (TIPS).
Type conference paper
Scope Post-1994 South African economy
Method econometric
Period studied 1994–1999
Regions South Africa, Greater Johannesburg Metropolitan Area
Themes labour markets wages, manufacturing industrial policy, transition post apartheid, methods data sources, inequality poverty unemployment
Citation key edwards2002

Argument

Using two firm-level surveys (the National Enterprise survey and the World Bank/GJMC large-manufacturing survey), the paper tests whether post-1994 tariff liberalisation drove South Africa's employment decline and rising skill intensity. Cross-tabulations and labour-demand regressions show a negative link between trade liberalisation and employment only among large firms. The overall employment effect is judged small, since firms hit by liberalisation account for at most about 20-22% of the employment decline. Improved export competitiveness did not raise employment, and exporters shed labour. There is weak evidence of skill-biased technological change, trade-related technology transfer and some 'defensive innovation'. Edwards concludes that technology, labour-market factors and macro conditions dominate trade.

Evidence and method

National Enterprise (NE) survey of 941 manufacturing firms (1999-2000, national, 1998-99 employment changes by occupation); World Bank/GJMC large-firm survey of 325 Greater Johannesburg manufacturing firms (1999, with recall employment data from 1994). Firms' self-reported tariff impacts, cross-tabulations, OLS/IRLS labour demand functions (Cobb-Douglas and CES) and probit models; literature on sectoral factor-content studies.

Findings

  • Large firms were much more affected by import competition (loss of market share) than small firms. (p. 23)

    51 % of large firms were either significantly or moderately affected compared to 24 % of small firms.

  • In the GJMA survey the median firm affected by tariff cuts reduced employment while unaffected firms raised it, though only weakly significant. (p. 27)

    the median firm not affected by lower import duties/taxes since 1994 raised employment by 7.7 %. In contrast the median firm that was affected reduced employment by 8.9 %.

  • Firms hurt by liberalisation explain only a minority of the employment decline, so trade is not the dominant cause. (p. 28)

    firms significantly or moderately affected by tariff reductions account for 22 % of the decline in total employment excluding the food & beverages sectors between 1994-98.

  • Employment cuts fell most heavily on less skilled labour in large, foreign and export firms. (p. 13)

    over 40 % of large and foreign firms reduced employment of semi-skilled and unskilled labour.

  • Few firms invested in order to cut the workforce, and reasons for investment were unrelated to tariff impact overall. (p. 34)

    Very few firms (less than 6 %) invested in order to reduce wage costs or labour conflict by cutting the workforce.

  • Firms that cut unskilled employment and were hurt by liberalisation disproportionately invested in new technology, consistent with defensive innovation. (p. 35)

    51.5 % of firms that reduced unskilled labour and experienced significant or moderate negative impacts on market share from trade liberalisation invested in new technology in order to raise efficiency and product quality.

  • Exporters were more likely to reduce employment despite improved export competitiveness. (p. 47)

    exporters, relative to non-exporters, had a higher probability of reducing employment of unskilled (-0.61) and highly skilled (-0.45) workers since the beginning of 1998.

  • The elasticity of substitution between skilled and less skilled labour is estimated to be low. (p. 48)

    The elasticity of substitution of skilled and less skilled workers ranges between 0.408 to 0.47.

  • Foreign and export firms are larger, more skill- and capital-intensive and more productive than domestic and non-export firms, especially among large firms. (p. 19)

    Large, foreign and export firms are more skill intensive, produce more output, are more capital intensive and employ more labour which is also more productive

  • South African export orientation is low by comparison with other African and East Asian exporters. (p. 18)

    Export firms in Indonesia, South Korea, Malaysia, Philippines and Thailand export between 36 % and 64 % of their output (Chandra et al. 2001a).