Employment policy effects on firm dynamics : evidence from the South African labour market

Flowerday, Wayde Thomas (2020-03)

Thesis (PhD)--Stellenbosch University, 2020.

Thesis

ENGLISH ABSTRACT: As South African policymakers strive to tackle low economic growth, poverty, unemployment, and inequality, the ability to unpack the effects of policy at a firm-level is key to the reformulation of more effective policy. The effects of Acts and policies within the South African labour market have not been well studied, especially when considering them from the firm-level. This thesis adds to the sparse literature by providing insights into how particular government labour market policies have affected firm dynamics. Firstly, this thesis is the first to conduct an impact study of the Employment Equity Act of 1998 on employment and production strategies of South African firms. The Act is a threshold policy, demanding that firms with 50 or more employees comply with it. Analysis revealed that there is a high possibility that the introduction of the Act has created a distortion in employment which has resulted in an inefficient allocation of resources at a firm level. This results in a lower employment of labour, particularly at the small, medium enterprise level, showing a potential unintended consequence of the Act. Secondly, this thesis utilises a new-to-the-world dataset, which was constructed purely to facilitate the research conducted within this thesis –the Bargaining Council Minimum Wage Dataset (BCMWD). This dataset is then utilised to generate descriptive results, not only showcasing its usefulness as a dataset, but also illustrating the evolution of minimum wages over time, as well as providing up to date estimates of Bargaining Council coverage. Thirdly, by using the BCMWD this thesis unpacks the effects of the existence of Bargaining Councils and their minimum wage agreements on firm dynamics – particularly on wages, and employment. The results reveal that despite the minimum wages prescribed by said Bargaining Councils, the average employee still reports a wage that is 42% below the stipulated minimum. Furthermore, the extension of updated Bargaining Council agreements is shown to have a detrimental effect on employment, whereby it decreases by approximately 8%. Yet again, this marks the intended effect of this area of policy as counterproductive. Lastly, this thesis unpacks the evolution of labour productivity in post-apartheid South Africa, especially in relation to Bargaining Councils. The thesis concludes that aggregate labour productivity (in manufacturing) in South Africa has been growing and that almost all of this growth has been driven by within-industry growth, with little being driven by cross-industry reallocation. Furthermore, this thesis suggests that the negative relationship exhibited by initial labour productivity and labour productivity growth speaks to a “catching-up” behaviour by lower labour productivity sub-sectors. And an analysis of Bargaining Council effects suggests that the presence of Bargaining Councils is correlated with sub-sectors being more productive. This result reinforces the notion that Bargaining Council agreements force less productive firms to restructure to become more productive, likely favouring more skilled employees over their less skilled counterparts.

AFRIKAANSE OPSOMMING: Terwyl Suid-Afrikaanse beleidmakers daarna streef om lae ekonomiese groei, armoede, werkloosheid en ongelykheid aan te spreek, is die vermoë om die effek van beleid op die vlak van die firma te bepaal die sleutel tot die formulering van meer effektiewe beleid. Die effek van Wette en beleid in die Suid-Afrikaanse arbeidsmark is nog nie goed bestudeer nie, veral vanuit die oogpunt van die firma gesien. Hierdie tesis voeg by tot die skrapse, beskikbare literatuur deurdat dit insig bied in hoe dinamiek in die firma geaffekteer word deur regeringsbeleid ten opsigte van die arbeidsmark. Eerstens, hierdie tesis is die eerste om ‘n studie te maak van die impak van die Wet Op Gelyke Indiensneming van 1998 op die indiensnemings- en produksie strategieë van Suid-Afrikaanse firmas. Die Wet is ‘n drumpel beleid, deurdat dit vereis dat slegs firmas met meer as 50 werknemers daaraan moet voldoen. Analise het openbaar dat daar dus ‘n groot moontlikheid bestaan dat die implementering van die Wet gelei het tot ‘n distorsie in indiensneming, met ‘n gevolglike oneffektiewe allokasie van bronne op firma-vlak. Dit lei tot verlaagde vlakke van indiensneming , veral by klein- en mediumgrootte firmas, wat ‘n potensiële en onbedoelde newe-effek van die Wet uitwys. Tweedens, die tesis maak gebruik van ‘n nuwe datastel wat geskep was met die uitsluitlike doel om die navorsing binne-in die tesis te fasiliteer – die sogenaamde Bedingingsraad Minimum Lone Datastel (“Bargaining Council Minimum Wage Dataset”, oftewel BCMWD). Die datastel word aangewend om beskrywende resultate te genereer, wat nie slegs die nuttigheid van die datastel tentoonstel nie, maar ook die evolusie van minimum lone oor ‘n gegewe tydperk illustreer, en onlangse skattings van die dekking van Bedingingsrade verskaf. Derdens, deur gebruik te maak van die BCMWD ontleed die tesis die effek van Bedingingsrade en minimum loonooreenkomste op firma dinamiek – veral ten opsigte van lone en indiensneming. Die resultate wys dat ‘n gemiddelde werknemer, ten spyte van minimum loonooreenkomste voorgeskryf deur Bedingingsrade, nogsteeds ‘n loon wat 42% laer is as die voorgeskrewe minimum sal rapporteer. Daar word ook uitgewys dat die verlenging van opgedateerde loonooreenkomste ‘n negatiewe effek op indiensneming het, deurdat dit produktiwiteit met 8% verlaag. Dit beklemtoon weereens dat die uitwerking van hierdie area van beleid inderdaad teenproduktief is. Laastens ontleed die tesis die evolusie van arbeidsproduktiwiteit in post-apartheid Suid-Afrika, veral ten opsigte van Bedingingsrade. Die tesis kom tot die gevolgtrekking dat totale arbeidsproduktiwiteit in die Suid-Afrikaanse vervaardigingsektor gegroei het, en dat die meerderheid van die groei te dankie is aan groei binne-in spesifieke industrieë en nie gedryf was deur herallokasies tussen industrieë nie. Die tesis stel ook voor dat die negatiewe verhouding tussen aanvanklike arbeidsproduktiwiteit en die groei in arbeidsproduktiwiteit dui op “inhaal” gedrag deur laer arbeidsproduktiwiteitsubsektore. Verder stel ‘n analise van die effek van Bedingingsrade ook voor dat die teenwoordigheid van Bedingingsrade lei tot verhoogde produktiwiteit in subsektore. Dié resultaat beklemtoon die idee dat ooreenkomste met Bedingingsrade daartoe lei dat minder produktiewe firmas geforseer word om te herstruktureer om sodoende meer produktief te raak, waarskynlik ten bate van meer bekwame werknemers en ten koste van hul minder bekwame eweknieë.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/107926
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