The Relationship Between Unemployment and Earnings Inequality in South Africa

Fiona Tregenna

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Unemployment and earnings inequality have moved closely together in South Africa in recent years, suggesting that there may not be a trade-off between them as the literature generally suggests. This article explores the relationship between unemployment and earnings inequality in South Africa, specifically investigating the extent to which changes in unemployment can account for changes in earnings inequality. Decomposing overall income inequality by factor source shows the overwhelming importance of earnings in income inequality more generally. Decomposing earnings inequality by employment status reveals the centrality of unemployment in accounting for the level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is found to be of lesser importance in explaining earnings inequality, as is wage dispersion within each of these categories. The findings point to the critical importance of reducing unemployment in South Africa if the extremely high levels of inequality are to be addressed.

Keywords: Inequality; earnings distribution; unemployment; labour market; South Africa. (search for similar items in EconPapers)
JEL-codes: D30 E24 J31 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-afr, nep-dev and nep-lab
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0907

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