Industry Structure and Labour Market Flexibility in the South African Manufacturing Sector: A Time Series and Panel Data Approach

Abstract

This paper presents a joint analysis of labour market flexibility and product market structure. Our investigation confirms earlier results of imperfect competition in South African manufacturing indusry, with an average mark-up of 50% for the period 1970 to 2004, without consistent trend in the mark-up over time. The contribution of the paper is to provide a theoretically grounded means of linking output market conduct to labour market flexibility. We infer the proportion of labour associated with rigidities in the labour market rather than flexible from the mark-up, and find that two thirds of total labour employed in South African manufacturing is associated with rigidities. We find that this proportion falls during the 1980s and rises during the 1990s, suggesting an increase in labour flexibility followed by a decrease.