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Earnings inequality in South Africa 1995–2003

Literature › Works

Ingrid Woolard; Chris Woolard (2006). Earnings inequality in South Africa 1995–2003. Employment, Growth and Development Initiative, Occasional Paper 1. HSRC Press.
Type report
Scope Post-1994 South African economy
Method descriptive quantitative
Period studied 1995–2003
Regions South Africa
Themes labour markets wages, inequality poverty unemployment, transition post apartheid, methods data sources, origins segregation
Citation key woolard2006

Argument

Using October Household Survey and Labour Force Survey data, the paper asks whether the earnings gap between low-skilled and highly skilled formal-sector workers continued to narrow after 1994. It finds the opposite: real earnings of skilled and highly skilled workers were flat while those of unskilled workers fell, so the skill gap widened. Racial and gender gaps narrowed mainly among managers, probably because of employment equity and affirmative action, but barely among highly skilled and skilled workers. The public sector compresses pay more than private firms. A short historical section summarises pre-1994 earnings trends (1945–1990) from secondary sources.

Evidence and method

Statistics South Africa OHS 1995–1999 and LFS 2000–2003, about 65,000 working-age respondents per survey (44,000 in 1996); formal-sector workers only; hourly earnings in constant 2000 prices; ISCO-88 skill categories. Historical context drawn from Hofmeyr (1999), Fallon (1992) and McGrath (1990) tables.

Findings

  • Earnings of unskilled workers fell over the period while other categories were flat, widening the skills gap. (p. 1)

    over the period in question, the earnings of more highly skilled workers remained roughly constant in real terms while the earnings of unskilled workers declined.

  • Earlier work found low-skilled remuneration rose strongly relative to skilled from 1970 to 1999. (p. 1)

    in 1999 real remuneration per highly skilled person was at 90% of the 1970 level, while real remuneration of unskilled and semi-skilled workers was at 250% of the 1970 level.

  • Up to 1972 the African–white earnings gap widened, partly due to apartheid legislation and education. (p. 2)

    up to 1972 the earnings gap between Africans and whites actually widened.

  • Racial earnings disparities fell after 1970, with the large rise in African mining wages linked to union pressure. (p. 2)

    These included reduced discrimination as a result of the scrapping of job reservation, the abolition of influx control, and the pressures of growing trade unionism.

  • Standardised for other characteristics, race differentials still existed in the late 1980s. (p. 2)

    After standardising for other relevant earnings-related characteristics, McGrath (1990) found significant earnings

  • Unskilled African men's real earnings fell significantly after 1999 (hourly average from 9.2 in 1999 to 5.5 in 2003). (p. 24)

    The earnings of unskilled African men in fact fell after 1999. This effect is statistically significant.

  • Unskilled earnings relative to semi-skilled men fell sharply by 2003, widening the gap at the bottom. (p. 7)

    Unskilled 0.57 0.52 0.75 0.69 0.71 0.65 0.68 0.61 0.45

  • Racial gaps narrowed among managers but the African–white gap among semi-skilled men remained very large. (p. 12)

    whereas in 1995 African female managers were earning less than half the earnings of their white counterparts, by 2003 they were almost on par.

  • Racial earnings gap among men increases as skill level falls; white men remain preferred for responsible positions. (p. 28)

    while the earnings gap between African men and white men in the skilled category was greater than in the highly skilled category, the gap is greater still in the semi-skilled category.

  • Public sector pays lower-skilled workers best and has the smallest skill and gender gaps; small-firm unskilled pay fell, possibly through casualisation. (p. 28)

    The table indicates that the public sector is the highest remunerator of lower-skilled (unskilled and semi-skilled) workers, both men and women.

  • Gender gap smallest in public sector. (p. 28)

    In 2000–2003 women in the public sector earned 88% of their male counterparts, with the figures for small and large firms 80% and 83% respectively.