High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa

Abstract

South Africa has very high unemployment, yet few adults work informally in small firms. This paper tests whether centralized bargaining, by which unionized large firms extend arbitration agreements to nonunionized smaller firms, contributes to this problem. While local labor market characteristics influence the location of these agreements, their coverage is spatially discontinuous, allowing identification by spatial regression discontinuity. Centralized bargaining agreements are found to decrease employment in an industry by 8–13 percent, with losses concentrated among small firms. These effects are not explained by resettlement to uncovered areas, and are robust to a wide variety of controls for unobserved heterogeneity. (JEL J52, K31, L25, O14, O15)

Employment and wage effects of extending collective bargaining agreements

“…The evidence for Portugal suggests that small firms affected by an extension experience employment losses of 2.6%, compared with an overall drop of 2% [11]. Similar results are found for South Africa, where employment losses are confined to firms with fewer than 10 employees [10]. The evidence for both countries suggests that small firms cut employment more than other firms following the extension of a collective bargaining contract.…”

“…Following the extension of a collective contract, employment levels in firms covered by a bargaining council fall 10% while (quality-adjusted) wages rise 10-15%, relative to adjacent councils [10]. Furthermore, relative to the border between areas covered and not covered by an extension of the collective contract, the rate of business creation is larger on the side of the border where the collective contract is not extended.…”

Environmental and Gender Impacts of Land Tenure Regularization in Africa: Pilot Evidence from Rwanda

“…In other words, plots were registered up to a cell's administrative boundaries, but not beyond the cell border. The spatial discontinuity generated by this allocation rule thus can be used to allow identification of programme effects by comparing individuals who live within a band on either side of the border following Magruder (2011). This approach extends work comparing enterprises on either side of a state border in the US to look at the effects of minimum wage legislation (Card and Krueger 1994) to explore effects of centralized bargaining agreements on employment using geographic and labour force data.…”

“…We follow the literature (Conley and Udry 2010;Goldstein and Udry 2008;Magruder 2011) and use spatial fixed effects to control for local level unobservables. Equation (1) now becomes:…”

Collective Bargaining Through the Magnifying Glass: A Comparison Between the Netherlands and Portugal

“…It has been argued that non-representative employer associations may even have an incentive to use extensions as an anticompetitive device that seeks to reduce competition from low-wage firms (Haucap et al, 2001;Magruder, 2012;Martins, 2014).…”