Wage Effects of Unions and Industrial Councils in South Africa

Abstract

Do union workers earn higher wages than nonunion workers in South Africa? (Yes, but less so than previous estimates would suggest.) And do industrial council agreements extend these premia to nonunion workers? (On the surface, yes, but the effects are too small to be the primary reason for South Africa's vast unemployment.) In South Africa unions, which played a crucial role in the country's transition from apartheid, are coming under fire. Some argue that a high union wage premium and the industrial council system are important causes of inflexibility in South Africa's labor market. Butcher and Rouse analyze unions' direct effect on workers' wages (including the time-honored question about whether the union wage gap is real or reflects the fact that workers who are members of unions differ from those who are not) and ask whether there is evidence that industrial council agreements force affected employers to pay union wages for nonunion workers. They estimate that among Africans union members earn about 20 percent more than nonmembers, while among whites union workers earn 10 percent more than nonunion workers. They find that African nonunion workers who are covered by industrial council agreements receive a premium of 6 to 10 percent; the premium is positive but not statistically significant for whites. In addition, the union gap is smaller inside the industrial council system than outside the system for Africans, implying that the total union premium for union members covered by an industrial council agreement is similar to the union premium outside the industrial council system. Among Africans, the industrial council and union wage gaps are greatest among low-wage workers. To increase employment, policies in South Africa should focus on increasing competition among employers within sectors, rather than increasing competition among workers by trying to reduce union power. This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to understand the impact of labor market policies and institutions on economic performance. study was funded by the Bank's Research Support Budget under the research project The Impact of Labor Market Policies and Institutions on Economic Performance (RPO 680-96). authors may be contacted at kbutcher@macfound.org or rouse@princeton.edu.