Unemployment and Reservation Wages in Working-Class Cape Town

Abstract

Are the unemployed in South Africa 'pricing themselves out of the labour market;'? This paper explores this proposition through an analysis of reservation wages in Cape Town's working class district of Khayelitsha/Mitchell's Plain. It argues that reservation wages are not out of line with predicted wages. This, in turn, suggests that unemployment in the area is not attributable to job seekers having unrealistically high reservation wages.

The Impact of Highly Active Antiretroviral Treatment (Haart) on Employment in Khayelitsha

“…The argument for unemployment being voluntary does not seem to hold in South Africa. Nattrass and Walker (2005) in their review of working class Cape Town found that there was no support for the proposition that the unemployed choose to abstain from the labour market because they have a preference for being unemployed. Instead evidence suggests that the unemployed are an underclass in South Africa because of the direct relationship between unemployment and poverty.…”

Exploring Attrition Bias: The Case of the Khayelitsha Panel Study (2000‐2004)

“…Unemployment in Table 3 (and in the rest of this analysis) follows the ‘broad’ unemployment definition: i.e. it includes all those aged 18 or above who were without work, and who said that they wanted to work (see Nattrass, 2002 and Nattrass and Walker, 2005 for a discussion of labour‐market categories used in the KMP survey).…”

“…Despite the fact that the 2000 survey had not been designed as a panel study (and hence very few contact details had been collected), 570 respondents were tracked down and re‐interviewed. Both ‘waves’ of the panel study paid a great deal of attention to labour‐market issues (see Nattrass and Walker 2005 for an analysis of reservation wages from the 2000 wave). The Khayelitsha panel data set thus has the potential to provide useful information about changes in labour‐market participation etc – but only if we are reasonably confident that attrition bias is not a problem for labour‐market analysis.…”

Why has unemployment risen in the New South Africa?1

“…For example, Nattrass and Walker (2005) find that reservation wages in a working‐class suburb of Cape Town match predicted wages fairly closely. Also, Kingdon and Knight find that the unemployed are less happy (2004b) and that job search and happiness are not both determined by some unobserved factor (2006b).…”