Why South Africa is Cheap for the Rich and Expensive for the Poor

Dadam, Vincent; Hanusch, Marek; Viegi, Nicola

doi:10.1596/1813-9450-8942

Cited by 3 publications

(8 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The insider–outsider hypothesis during the second sub‐period finds some support from the evidence presented and reviewed in Fedderke (). The presence of labour market rigidities in the second sub‐period is also consistent with the evidence obtained from Dadam and Viegi's () reduced‐form wage‐unemployment equations and their structural model. In addition, the rise in capital‐intensive production techniques observed in the manufacturing sector, especially since the early 1990s (see Rodrik, ; Black and Hasson, ), may also account for a more rigid OPWE relationship during the second sub‐period.…”

Section: The Sources Of Inflation In South Africasupporting

confidence: 87%

“…This labour market rigidity, which is consistent with insider–outsider models of union behaviour, makes disinflation policy costlier, and also implies substantial job losses during recessionary conditions. These policy implications are supported by the evidence presented in Dadam and Viegi (). Based on reduced‐form equations, they report a weaker response of wage changes to employment (demand) changes over time, and confirm this result more formally in a structural model that shows how labour market rigidities complicate the conduct and efficiency of monetary policy.…”

Section: Implications For Monetary Policysupporting

confidence: 62%

“…The importance of supply‐side factors of inflation are generally supported by other studies in the literature, which emphasise the inflationary effect of wage increases in excess of labour productivity growth; terms of trade, exchange rate and import price changes; and uncompetitive pricing behaviour by domestic producers (see, e.g . Akinboade et al ., ; Fedderke and Schaling, ; Burger and Marinkov, ; Hodge, ; Dadam and Viegi, ; Fedderke and Liu, ; Leshoro and Kollamparambil, ; Phiri, ).…”

Section: The Sources Of Inflation In South Africamentioning

confidence: 99%

“…The downward rigidity of wages to demand conditions also have implications for employment. Dadam and Viegi () show that the slowdown in output that followed immediately after the global financial crisis in 2008 triggered large employment losses in South Africa relative to another sub‐sample of countries, presumably because wages were less flexible in South Africa. To create more flexible labour market conditions and, in the process, preserve employment during recessionary conditions and improve the conduct of monetary policy, would require an effective social contract between business, labour unions and the government…”

Section: Implications For Monetary Policymentioning

confidence: 99%

“…The importance of cost‐push and structural inflation are broadly consistent with other findings in the literature, such as Akinboade et al . (), Fedderke and Schaling (), Burger and Marinkov (), Hodge (), Dadam and Viegi () and Fedderke and Liu (). Thus, although demand has remained important in the inflationary process since the mid‐1980s, persistent supply‐side sources of inflation have complicated the conduct and efficiency of monetary policy.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Re‐Examining the Role of Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

Nell¹

2018

South African J Economics

View full text Add to dashboard Cite

Although studies generally find evidence of a Phillips curve‐type relationship in South Africa, uncertainty remains about the relevance of the model over a relatively long sample period, and whether conventional output gap measures are suitable proxies for demand pressure. This paper reviews research which shows that the Phillips curve model prevails over an extended sample, provided that the benchmark specifications include major structural changes in the balance‐of‐payments and labour market, and account for shifts in the root causes of inflation. When this is done, a linear specification with an output gap in levels correctly predicts the non‐trended inflation pattern over the period 1971(Q1)–1984(Q4), whereas a piecewise concave curve with an output gap in growth rates accurately forecasts the decelerating inflation pattern during 1986(Q1)–2001(Q2). A novel feature of the concave model is that it remains statistically robust and structurally stable when it is estimated until 2015(Q4). The concave model imparts a disinflationary bias, which suggests that monetary policy should be more expansionary during downswing phases of the business cycle and neutral during upswing phases. The analysis also considers how the shape of the Phillips curve might change if the balance‐of‐payments constraint on demand is relaxed in a significant way.

show abstract

Section: The Sources Of Inflation In South Africasupporting

confidence: 87%

Section: Implications For Monetary Policysupporting

confidence: 62%

Section: The Sources Of Inflation In South Africamentioning

confidence: 99%

Section: Implications For Monetary Policymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Re‐Examining the Role of Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

Nell¹

2018

South African J Economics

View full text Add to dashboard Cite

show abstract

Does Employing Workers or Accepting Work Pay? Analyzing Labor Costs in South Africa

Langbein¹,

Weber²

2018

View full text Add to dashboard Cite

The contribution of this paper to the literature is threefold. First, it examines the three main explanations of high labor costs in South Africa brought forward in the literature, namely high living costs, skills mismatch, and the collective bargaining mechanism. 2 Second, it compares the results found for South Africa to a set of benchmark countries, thereby determining the magnitude of the effects in an international comparison. Third, it links macro-economic growth diagnostic tools to labor force surveys. This allows zooming in from a macro-economic perspective to individuals and hence, identify the determinants and developments of labor costs, earnings, and structural change.This paper addresses the question whether employing workers pays in South Africa from the perspective of the employer and whether working pays from the perspective ofespecially skilledworkers. The analysis starts from a national overview on important indicators for South Africa using national accounts data and calculates productivity measures as well as labor costs and unit labor costs. For an international perspective, unit labor costs are compared to a set of countries similar to South Africa. Moving from the aggregate view of the national accounts to the individual level, we calculate employers' labor costs, employees' gross income and the respective social contributions, effectively yielding the tax wedge. Following the argument of the living wages, we analyze work related expenditures and determine the share of such expenditures on the net income for all employed. In a second step, wage determinants are examined with a focus on the role of unionization in South Africa. As the degree of unionization differs by sectors, we interact the two with each other and relate the results to South Africa's collective bargaining approach. Comparisons between South Africa and comparator countries with data available help to determine the role of unions on labor costs and earnings from an international perspective. Similarly, we calculate the returns to education for South Africa for a broader set of comparator countries but with fewer variables involved.Results from national accounts data confirm the increases in labor costs that were, however, not in tandem with productivity increases. This led to higher unit labor costs over time in comparison to other, similar countries. High living expenditures and union density are factors contributing to the growing labor costs but in an international comparison it is the skills mismatch that increases the labor costs disproportionally. Overall, the results point at the need for fostering the process of structural change in South Africa.The paper is structured as follows. The next section describes the data used for the analysis within South Africa and the benchmark countries. Section three presents the methodology, while section four shows the results. The last section concludes. Data Data for South AfricaTo understand the determinants of wages and expenditure patterns in South Africa in detail two differen...

show abstract

Is There a Relationship between Productivity and Relative Prices in South Africa?

Rapapali¹,

Steenkamp²

2019

Journal of Development Perspectives

View full text Add to dashboard Cite

The Balassa–Samuelson hypothesis proposes that there should be a direct relationship between a country’s real exchange rate and its productivity performance. Given South Africa’s (SA’s) poor relative productivity performance, a weak and depreciating real exchange rate would be expected under this hypothesis. However, the real effective exchange rate has been relatively stable since the early 2000s. We construct tradable and nontradable price and productivity measures and show that tradable sectors have tended to experience more rapid productivity growth than nontradable sectors in both SA and the United States. However, we show that there is not a strong relationship between sectoral productivity and prices in SA, or with the real exchange rate with the United States. Better explanations for SA’s deteriorating international competitiveness (shown by higher relative prices) are a relatively high domestic inflation rate caused by nontradable sectors, as well as disproportionately large increases in government wages over the post–global financial crisis period.

show abstract

Why South Africa is Cheap for the Rich and Expensive for the Poor

Cited by 3 publications

References 0 publications

Re‐Examining the Role of Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

Re‐Examining the Role of Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

Does Employing Workers or Accepting Work Pay? Analyzing Labor Costs in South Africa

Is There a Relationship between Productivity and Relative Prices in South Africa?

Contact Info

Product

Resources

About