Structural Change and Patterns of Inequality in the South African Labour Market

In the post-apartheid era South Africa has found itself in a long run growth trap with growth in Agriculture and Manufacturing notably absent from the economy, resulting in an inability of the economy to absorb excess labour supply. To understand the role that structural change has had on inequality in the labour market this paper provides an overview of key labour market trends in the post-apartheid era followed by an analysis of labour demand trends, and structural transformation. The impact of structural transformation on wage shifts and wage inequality is investigated pointing to the existence of a “missing middle” in the real-earnings distribution of those employed. Post-apartheid wage inequality is explained using a participation, employment and quantile regression framework, showing that wage inequality has increased over time. The role of unions, the impact of the New Minimum Wage, and the influence of legislative changes such as the regulatory amendment accounting for workers in Temporary Employment Services, and the employment tax incentive is evaluated. We show that in the two decades following the end of apartheid South Africa’s growth path has been characterized by a rapid relative expansion in the services (or tertiary) sector resulting in the marginalization of workers in the middle of the skills and wage distribution. Ultimately, inequality in South Africa has been replicated through a reversion to a skills biased employment trajectory. With policies in place to protect the bottom end worker, a hollowing out of workers in the middle of the wage distribution has arisen. This “missing middle” is a key new manifestation of the persistent and high inequality in the South African labour market.