Inclusive growth and wage inequality: The case of South African manufacturing exporters

Abstract

Background: Exporting poses a challenge to the achievement of inclusive growth because there is a discernible wage inequality between exporting and non-exporting firms. The literature shows that exporting firms pay a wage premium relative to non-exporting firms, with the resultant wage gaps having widened over the years in line with expanding global trade. Aim: Limited research has been done on the distribution of wages within manufacturing exporting firms relative to non-exporting firms in South Africa and how wage differentials might contribute to wage inequality. This article disentangles these wage differentials using administrative firm-level panel data. Setting: Exporting and non-exporting firms in the South African manufacturing sector. Methods: By determining the wage differential in a firm at various percentiles, it is found that all employees (across the wage distribution) in an exporting firm earned a wage premium. This premium seemed to increase in magnitude towards the upper tail of the distribution, indicating that the wage differential did contribute to wage inequality. Results: Much of the wage inequality could be explained by the size and labour productivity of a firm. This implies that larger, more productive firms are more likely to be exporters, whereas there was little evidence that wage inequality is driven by either the type of destination country or the quality of export products. Conclusion: The findings suggest that the resultant wage inequality is related to the process of exporting or simply a firm being in the export market. Alternatively, wage inequality could be attributable to a specific type of firm (employing a specific type of person with sought-after skills) that had this (unequal) wage distribution before it started to export.