The importance of segmentation in the South African labour market

Type Conference Paper - FES/ DPRU Second Annual Conference on Labour Markets and Poverty in South Africa, 22 – 24 October 2002, Glenburn Lodge
Title The importance of segmentation in the South African labour market
Publication (Day/Month/Year) 2002
City Muldersdrift
Country/State South Africa
South Africa's labour market has performed dismally over the last 25 years in respect of its ability tocreate formal-sector jobs for the labour force. While poor economic growth over most of this period has undoubtedly been a major contributory factor, it is clear that factors internal to the labour market have also had a role to play. Since the early 1980s a wide variety of workers? rights has been entrenched, in particular since 1994. A probable effect of these measures is to protect existing formal-sector workers, in particular unionised workers, at the expense of those who seek such jobs, creating classes of relatively privileged insiders and increasingly marginalised outsiders. This would be expected to result in segmentation of the market with wage differentials between the segments which cannot be explained by differences in skills and working conditions. This study estimates the degree of segmentation using earnings data from household surveys conducted in 1993, 1995 and 1999, and finds substantial earnings differentials between (i) unionised and nonunionised formal-sector employees, (ii) non-unionised formal- and informal-sector employees, and (iii)
employees in what can be termed the ?regulated? and ?unregulated? formal sectors, after taking due account of differences in productive characteristics. The general trend has been for the union wage premium to increase steadily while the regulated-unregulated premium has decreased even more dramatically. This suggests that unionised workers have been able to maintain or improve their relative position in the labour market in spite of a worsening unemployment situation, whereas those who do not have the benefit of unionisation have steadily slipped back to a more market-determined wage, assuming the unregulated workers represent a segment whose wages are market determined. Alternatively, the results may also reflect the efforts of the government to improve the lot of this group of workers over recent years. It seems clear that a hierarchy of workers has emerged, with those at the top in relatively good protected jobs. This protection comes at the expense of employment creation, meaning that increasing numbers of individuals are denied employment in these segments through no fault of their own, with those having such employment increasingly becoming a privileged elite. Given South Africa?s situation of increasing dissatisfaction of a growing mass of the population which was disadvantaged under apartheid with the lack of delivery of jobs and better standards of living, the current situation can only be viewed with increasing alarm.

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