Union wage premia and wage inequality in South Africa

Abstract

Rising inequality in the developed world over the last 40 years has been accompanied by declining trade union power. Unions have been found to raise the wages of their members but also to reduce overall wage inequality through the standardisation of wages in the union sector. In this paper we examine the extent to which unions raise wages and affect the extremely high levels of wage inequality in South Africa, using comparable household surveys from 1993 to 2019. We find that union wage premia are extremely high, and that union membership has become increasingly concentrated at the top of the wage distribution and in the public sector. As a result, variance decompositions show that unions increased inequality slightly in more recent periods. We also find that earnings imputation from 2010 onwards makes estimating the true impact of unionisation on wages impossible without unimputed earnings data.