Abstract
This study examines the drivers of the steady decline in South Africa’s private sector labour share between 1971 and 2019. The focus on South Africa is instructive as its distributional contestation is bounded in a matrix of racial conflict. Crucial reforms on trade, finance and welfare were undertaken since 1994, but the study finds little evidence that the extension of the franchise promoted egalitarianism, since white economic elites invested in de facto political power. This study employs an Unrestricted Error Correction Model to estimate the drivers of the private sector labour share, and the findings suggest that globalisation, financialisation and public spending have decreased the labour share, while the effects of education have been positive but insufficient to halt the decline.
Highlights
South Africa has the highest income inequality in the world – the income share of its top 10% exceeds its peers in the USA, Brazil and IndiaEconomic and Industrial Democracy 00(0)– and is even higher than the Middle East region (Assouad et al, 2018)
Building on the political economy analysis of the South African power relations and the theoretical postulates presented in the previous sections, we proceed to the econometric analysis of the determinants of functional income inequality in South Africa between 1973 and 2018
This study finds strong evidence that trade globalisation, financialisation and public consumption lower the South African private sector wage share since 1971
Summary
South Africa has the highest income inequality in the world – the income share of its top 10% (more than 60% of national income) exceeds its peers in the USA, Brazil and IndiaEconomic and Industrial Democracy 00(0)– and is even higher than the Middle East region (Assouad et al, 2018). Fewer studies have focused on functional income distribution, with Kaseeram and Mahadea (2015) and Burger (2015) as notable exceptions; they focus on the post-1994 period and use fewer explanatory variables. We estimate the drivers of South Africa’s functional income inequality from 1971 to 2019 – the longest period covered in such a study on South Africa so far. Our interest is focused on documenting and explaining the dynamics of the private sector wage share due to the combination of high-income inequality and anaemic growth in South Africa (Makgetla, 2004), which presents important lessons for other racially divided societies, with a long history of legally entrenched racial hierarchies, like Brazil or the Southern USA. Conflict over wage negotiation and the resulting wage share is a commonly used measure of cost competitiveness, and this study empirically identifies the political and economic institutions that underpin its dynamics
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