Institutions, Wage Differentiation and the Structure of Employment in South Africa

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University of Cape Town

Institutions matter. More specifically, Bargaining Councils matter incontemporary South Africa in terms of their effects on the differentiation of wages and the structure of employment. Institutions established more thaneighty years ago continue today, even after the abandonment of their originalrationale in terms of perpetuating a racist hierarchy, to exclude non-privileged workers from regulated employment. Then, the excluded were confined tounregulated, lower-wage unskilled work. Today, the excluded are confined tounemployment or informal work. The consequences are most pronounced intradable, labour-intensive sectors such as the clothing industry, when nationalbargaining councils reduce inter-regional wage differentiation through settingnational minimum wages. This pushes some employers to restructure production in more capital- and skill-intensive directions, whilst some lower-wage, labour-intensive producers are forced out of business. The result is jobdestruction, especially among less skilled occupations. Because it is low-wage jobs and wage differentiation that are affected, the effects may be obscured inanalyses of wages generally (and hence total employment). BargainingCouncils can provide for better-organised employers and workers to pursueself-interest, even at the expense of less-organised employers and workers,whilst providing also an ideological umbrella that justifies the procedures and outcomes as just and necessary. The effects are compounded when wage effectsmesh with industrial policy in pushing firms towards more capital- and skill-intensive production.